I've designed my game to work with tilesets that are 256x256 with tiles that are 32x32. When looking to contract 2d pixel artists is it common practice to pay by a complete tileset or by "object" made up of tiles? Any other things I should know about around this? I've never contracted an artist before.

There really isn't a rulebook or set of common practices for this. Just discuss payment terms with the artist as you interview them and hammer out a contract. Give them a good idea of what is expected, and they can give you a good idea of what they will expect to be paid.