Independent contractor vs self employed jobs - All you need to know
The fast growth of the gig economy has led to a generation focused on being self-employed. The end goal is a work-life balance that gives you control over your schedule, income, and convenience, whether you're a sole proprietor or work as an independent contractor.
But there needs to be a clear difference between self-employed and independent contractors, especially regarding licenses and taxes. You should know these differences as a taxpayer or small business owner.
What does it mean to be self-employed?
The U.S internal revenue service clearly explained being self-employed as a state of working for oneself and not a company. A self-employed person renders services to others and bears responsibility for their income and losses. Being self-employed excludes you from the bureaucracies of working for someone else. You are your employer with rights to your time, income, and decisions.
As a self-employed person, here are a few options available to you:
You can run a company as a sole proprietor or a limited liability.
You can become a professional freelancer or an independent contractor offering services per gig.
You can also form a sustainable partnership and earn income as a partner.
Who is an independent contractor?
To answer the question, "what is a self-employed contractor?" a good definition should be:
An independent contractor is a person that offers a service to a company for a fee. These services are majorly sealed by a written or verbal agreement. The agreement is called a self-employed contract. An independent contractor has rights to the duration of time they wish to work and the equipment they will use at work. For example, an accountant offers financial services to a company for a temporary period.
Recent research by Statista showed that there were over 23.9 million Independent contractors in the United States in 2021. The research data depicts the rise in the number of people working independently for clients with flexible work time and income.
What is the difference between the two?
A lot of confusion has been hovering around the question," is an independent contractor self-employed?". To give a direct response, yes! Independent contractors are self-employed.
But is self-employed the same as an independent contractor? No! An independent contractor can be regarded as self-employed. However, being self-employed is more than being just an independent contractor.
A good example is a relationship between a writer and a copywriter. While a copywriter is a writer, not all writers are copywriters. A writer is ''generic'' while a copywriter is specific.
Similarly, the difference between ''independent contractor'' and ''self-employed'' is in its specifications. An independent contractor is a specific type of self-employment. The existence of other types of self-employment like a sole proprietorship, or partnership, clearly depicts the difference between self-employed and independent contractors.
Independent contractor vs. self-employed can also be slightly differentiated because other types of self-employment like sole proprietors and partners do not work on hourly rates. But self-employed contractors are paid hourly.
Pros of being self-employed
You are in control of your business.
Controlling your business is everything. You choose your business goals, mission, values, and target as a self-employed person. As your business runs, you will enjoy the opportunity of making your day-to-day decisions and ensuring it aligns with your business vision.
You own your time.
Time translates to money. Time is needed to rest, work and make more money. Therefore, owning your time is a huge advantage in your financial journey. It gives you the allowance to plan a balanced work-life.
You get to choose your workspace.
Unlike conventional employee spaces, which are fixed and designed by the employer, being self-employed allows you to design a suitable work environment. You can also choose to work from home at your convenience.
You can challenge yourself and set higher milestones.
The life of a self-employed person can be very challenging. But on the flip side, it will challenge you to grow your financial IQ and build more problem-solving skills.
It is quite profitable.
If you are self-employed, you will have all your business income to yourself. That will imply more earnings, healthier life, and more happiness.
Cons of being self-employed
You bear the risks of loss alone.
Building a business from scratch takes a lot of risks. Since you own all your business benefits, you will be responsible for all business risks and losses.
Your tax responsibility increases.
The U.S internal revenue services made provision for tax payment as a self-employed person. The provision demands you pay both employer and employee taxes. This increases your tax responsibility compared to being employed by a company.
You don't get employee benefits.
From 401k plans to paid medical leave and holidays, employees of different companies enjoy a lot of extra benefits in addition to their salaries. Being self-employed automatically excludes you from enjoying any of these benefits.
Your free time isn't paid for.
Normal employees enjoy free time from work and still get paid. But as a self-employed person, your free time does not generate extra income.
You need to outsource, and that means additional costs.
As a self-employed person, you can't do all the work. Realistically, you might not have all the skills your business needs. At some point, you might outsource some services from professionals. Outsourcing implies more expenses, especially since you don't determine the cost of these services.
Pros of being an independent contractor
You can enjoy a flexible work schedule.
A flexible work schedule tops the list of benefits an independent contractor enjoys. A self-employed contractor has the right to choose the number of hours to work per week. Working hours are recognized on the contract schedule.
You can work for many companies at the same time.
Another benefit of being a self-employed contractor is the ability to leverage multiple contracts simultaneously. Self-employed contractors can contract multiple companies at the same time while choosing the best time to deliver the required service to them.
You can earn more money.
An independent contractor self-employed can earn more working for multiple clients. Having multiple clients translates to multiple sources of income.
Cons of being an independent contractor
You will have days the income is unstable.
Your income might be unstable if you haven't built a strong client base. An unstable income is a great disadvantage to you.
No paid leave.
As an independent contractor self-employed, you can go on work vacations when you are bored from work or need a fresh start. However, independent contracts do not pay for work leave. Hence, you might face risks of no income source.
You may need to wear many hats, which isn't always fun.
No matter the high-income level, juggling multiple tasks isn't going to be easy. It means you might end up working for longer hours than intended. Overworking yourself incurs stress and other health care issues.
You will need to be intentional about everything.
This isn't necessarily a ''con'' to be honest. It will take a lot of hard work to build a business with a strong client base. You will need to work hard in marketing your products and services, proper branding, and financial management of your business.
Manage your self-employed/ independent contractor business with Workee
To earn more as a self-employed contractor, you will need to manage your projects effectively. A good project management tool will
help you optimize your time and offer high-quality services to your clients. Workee is a good tool for this.
Workee also has an all-in-one client management system that can help your clients schedule calls with you. It can also help you receive money, manage taxes and link your invoices. All within a short time and in one software.
In addition, you will need to position yourself visibly to avoid the risks of unstable income. Setting up a free business website on Workee can help more clients access you. Your profile will be in the professional community in just a few minutes. You can check the services here.
Every successful self-employment brand thrives with good visibility and a client management system. Whether you are self-employed or an independent contractor, visibility will help you generate leads, while client management will secure your leads and translate them to sales. With more sales, your income stability will be guaranteed.