April 26, 2021
What Defines an Independent Contractor vs. an Employee?
Filed under: Entrepreneurship Life Hacks Work at Home Hacks
Sometimes, it can be tricky to understand if you are considered an independent contractor or an employee. This worker classification depends on a few key factors. With many jobs now remote or project-based, the definition might be muddled. It’s important to know which type of worker you are and to understand the reasons why you might want to be an independent contractor.
Who is an Employee vs. an Independent Contractor?
Certain conditions regarding the way you work determine whether you are an employee vs. an independent contractor. It typically comes down to how much control or direction an employer has over a worker. The more an employer can determine what someone does, when, and how they do it, the more likely it is that the worker is a traditional employee.
As an independent contractor, you retain more control over the work that you do. An employer will tell you what they expect from you, but you decide how to get to that point. An independent contractor is an entirely separate business than that of the employer. This makes a critical difference.
Independent contractors can work in many roles and fields, just like standard employees. Creative professionals are often independent contractors, but consultants, IT professionals, brokers, and many other workers can have that freedom, too. If being an independent contractor is appealing to you, it is worth figuring out how you can work in your field with this level of independence.
Benefits of Being an Independent Contractor vs. an Employee
When your worker classification is independent contractor, there are countless benefits to your work/life balance, your career trajectory, and of course, your flexibility.
As an independent contractor, you can set your own hours and the conditions of where and how you will do your work. While you need to find an employer willing to contract you on those terms, you start with self-defined options.
As an independent contractor, you control your work/life balance. You manage your work schedule and work from home, commuting less and attending fewer meetings. You can manage the working environment and approaches that fit your life.
Independent contractors typically provide their own equipment, materials, and other supplies. Luckily, that can also be a benefit, as your purchases are deductible business expenses. If you have to travel for your work, or work out of your home and incur expenses there, you can file for these as deductions as well.
And, as an independent contractor, you may make more money than an employee in certain situations. Companies pay more than just wages to employees. Benefits, taxes, and vacation pay can add up.
If you are an independent contractor, you do not get those perks, but the employer’s savings might be passed on to you in the form of a higher rate of pay. You may find that your income rises as an independent contractor, especially if your work is in an in-demand industry.
But don’t forget that being self-employed means you’re responsible for paying all of your taxes. So, set money aside for quarterly tax filings.
Overall, being an independent contractor provides workers with flexibility and personalized work conditions in a market where experience matters, but permanency is not a must-have.
Deciding to be an Independent Contractor
Being an independent contractor will not suit everyone. It’s important to take a balanced look at the benefits, along with the demands of this kind of work, which requires organization and discipline. You will need to have a good idea of what you should charge and be willing to ask for what you are worth.
Working with a financial advisor can be helpful in setting up your independent business. Keeping track of your transactions, and as mentioned earlier, filing your taxes—on time—are important.
Remember, you’re in business for yourself. As long as you have a good system to manage this, however, it should not dissuade you from your goals.
To find work as an independent contractor, reach out to your network. Liaise with other contractors, keep up with prospective companies online and consider specialty websites that link contractors with opportunities.