Understanding the definition of an independent contractor is important. You might be considering a career that will have you working as an independent contractor. If you don’t understand what this is, it can be a bit scary.
An independent contractor is rather different from an employee. You might perform the same job, but the way you are paid and your benefits might be different. Let’s look at what an independent contractor is and how it’s different from an employee.
If you’re contracted to provide a service for a business as a non-employee, you are an independent contractor. Many freelance workers will work as independent contractors. When it comes to the way you file taxes, you will file differently, as well.
An independent contractor will be paid a set amount. This amount will not have taxes deducted from it. You are, in a sense, working for yourself as an independent contractor.
Independent Contractors as Business Entities
You will not be considered an employee as an independent contractor. This means you will have a contract with your client for the work needing to be done. As an independent contractor, you are a business entity without being an employee or having employees working for you.
This type of entity can work as an agent, broker, or consultant. You can hire people as employees, but you don’t have to. Most employers will establish a different type of business entity.
As an independent contractor, you will gain three basic benefits:
- You will be able to deduct business expenses
- You will work independently
- There will be no tax withholding
Most people decide to work as independent contractors for freedom. You can take on multiple clients as an independent contractor. It’s also possible to set your own hours and work the schedule you prefer, in most cases.
It can also be a pretty big benefit to having no tax withholding from your pay. This allows you to file your own taxes each year and pay the amount you owe without getting a refund. While this might not seem like a benefit, you get more of your money upfront instead of watching it go to the IRS every paycheck.
When you do your taxes, you will also get to deduct business expenses. This can help to lessen your tax liability. You can deduct many different expenses as an independent contractor.
Disadvantages of Being an Independent Contractor
While there are benefits to becoming an independent contractor, there are also disadvantages. The biggest disadvantage is the fact that there isn’t a guarantee of income. With an employer, you get a regular paycheck. As an independent contractor, you may not have clients or as many clients at one time as another.
Independent contractors are also responsible for their business expenses. You will also have to pay for your own benefits, including health insurance. As an independent contractor, you will also need to file taxes and pay taxes on your own.
Comparing an Independent Contractor to an Employee
Independent contractors can take on multiple clients. When you’re an employee, you work for one employer and likely won’t take on any other clients.
Setting your own work hours is possible as an independent contractor. If you’re an employee, you will have your work hours set for you.
When you work as an employee, you will have someone monitoring how the job is done. However, as an independent contractor, you will choose how the job gets completed.
Employees will likely be eligible for employee benefits. As an independent contractor, you won’t be eligible for any company-sponsored benefits.
Top Independent Contractor Careers
You can become a photographer and work as an independent contractor. This is a very common field for independent contractors due to the freedom you gain. Photographers tend to be very creative and gain more earning potential working as independent contractors instead of working for an employer.
Many online writers work as freelancers. This means they will file taxes as an independent contractor. When you work as an online writer, you gain access to more work as an independent contractor.
When you become an online writer, you want to be able to take on multiple clients. Most online writers make more money as independent contractors and find more work with the freedom to take on multiple clients.
If you decide you want to work as a tutor, you’ll likely be an independent contractor. Tutors can work online or in person, but they will likely work for themselves. While there may be some tutor positions as employees, many will file taxes as independent contractors.
You might work with multiple online platforms or simply take on a few students over the summer. Either way, you won’t be an employee.
Real Estate Agent
As a real estate agent, you might work for a broker, but you will likely be an independent contractor. You will work with buyers and sellers to help them find the right home or sell their home. There is a high earning potential for a real estate agent. Just be aware, you will be an independent contractor, in most circumstances.
A very popular online career is one as a virtual assistant. You will help those needing an assistant and work as an independent contractor. Most virtual assistants will handle phone calls, emails, social media tasks, and more.
You might work through a platform to find clients, but you will be paid as an independent contractor. Some virtual assistants run their own business and take on clients without working with a larger platform.
If you’re a driver for Uber, Lyft, or another taxi type of service, you will be an independent contractor. This type of position has quite a bit of opportunity for good earnings. You will need to take care of your own taxes as you will be an independent contractor working for the company.
Many delivery jobs are held by independent contractors. While working as a pizza delivery person will likely make you an employee, working for a company, such as DoorDash will likely make you an independent contractor.
Whether you sell things on eBay, Etsy, or Amazon, you will be an independent contractor. You might establish an actual business if you plan to hire employees. However, if you don’t, you’ll likely work as an independent contractor.
A growing career you will likely work as an independent contractor is a one as a life coach. As a life coach, you can help clients reach their goals in many ways. You will likely run your own business, but file your taxes as an independent contractor.
Search Engine Evaluation/Optimization Jobs
If you help people with their search engine optimization and evaluation, you will likely be an independent contractor. This is similar to working as an online writer. You will do a different type of job, but you will work in a similar fashion as a freelancer.
Social Media Marketer
Another position that is usually an independent contractor is one as a social media marketer. You will help multiple clients with their social media needs. While this position can be an employee, it’s often someone working as a freelancer.
If you become a transcriber of any type, you will likely work as an independent contractor. Most transcription jobs are on a contract basis. While you might be an employee, as a transcriptionist, it’s more common to do this as a freelancer or independent contractor.
Dog Walkers and Pet Sitters
Most dog walkers and pet sitters work as independent contractors. They will take on as many clients as they can handle and work when they prefer. Some will work with platforms to find clients, but they are still independent contractors.
If you work as a landscaper, you might work as an employee. However, it’s not uncommon to work as an independent contractor in landscaping. Many will work for themselves when providing lawn care services and other landscaping services. They may hire a crew and establish a business, but without employees, they will likely remain independent contractors.
As a bookkeeper, you will likely take on multiple clients. You can work in the accounting department of a company, but many will work as bookkeepers for multiple clients. They will likely work as independent contractors, in this scenario.
If you want to work as a website designer, you will likely work as a freelancer. This means you will file taxes as an independent contractor. Yes, this job might be found at a company as an employer. However, if you want to do freelance work, you will be an independent contractor.
Not all journalists are independent contractors. However, if you take on freelance journalist work, you will be paid as an independent contractor, in most cases.
There are many types of careers and jobs you can enter into as an independent contractor. You will likely work as a freelancer or run your own business under this classification.