Working for yourself
A lot of people in the working world consider self-employment instead of working for someone else. This is especially true over the last five years. The emergence of certain apps like Uber and freelancing websites have made it easier than ever to work for yourself.
This has, in part, led to entrepreneurship boom in popularity over the last few years. But, an important aspect to consider is whether it is the right choice for you.
Being employed by a company offers more security and stability. There is a lower chance that a large and established company will fail and go bankrupt. So, there is greater reliability in your income. This is why it’s often easier to get a personal loan from banks when you’re employed.
However, being self-employment gives you more freedom and control over the work you do. It also raises the potential income you can make and can be beneficial for taxes.
So, if you’re looking at being self-employed, one of the biggest forms of getting work is through independent contracting. This is one of the most common ways companies hire self-employed people and their companies for work.
This might sound like it’s the same as self-employment as a whole. But, there are some differences.
Independent Contractors and self-employment: Whats the difference?
Simply put, independent contractors are self-employed people or companies who acquire contracts from companies to do a certain job or carry out a certain project.
This is much more specific and temporary than a company hiring an employee. Once the project is complete, and payment made, the company can choose whether or not to offer to renew the contract. So, if there are no more projects or need for the contractor, the contract ends.
This gives greater freedom and cost-efficiency to the company while giving you the freedom of self-employment. But, if you are going to start working as an independent contractor, there are a few things you should know.
7 Things Every Independent Contractor Should Know
You (and your client) should make it clear you’re an independent contractor and not an employee
It is not always clear whether you’re considered an employee or contractor when a company hires you. This can be debated by either side if issues regarding payment, taxes or contributions arise.
Other differences include the amount of training you receive and how much control you have over how you carry out a project. An employee is usually trained in and told how something should be done. A contractor gets minimal training and can choose how, and with who, he does the project with.
Contractors will usually be given a set timeframe over which the work is to be done, instead of an indefinite contract. Although, renewal clauses can be put into some contracts.
A good way to avoid issues over the type of employment provided is to specify the above in the contract, as well as what the company considers you. This will help avoid headaches later on.
Many work expenses are often overlooked
Another big difference between an employee and an independent contractor is your expenses. An employer usually has to pay for an employees equipment and uniform, whereas a contractor has to buy his own.
This can have its perks as well as its drawbacks. The initial cost of equipment can be high at first. But, you can claim these as expenses against your income tax. Things like traveling to work costs, training, and even meetings can all be claimed too, which is not the case for employees. Guides on these business expenses are available online.
Long-term (regular) work is more valuable than higher paid, short-term work
This might seem obvious. But, you’d be surprised how many contractors take higher paying, irregular work over lower-paying regular jobs. While this may seem like a good idea at the time, most higher paying jobs don’t last long. This is usually why they pay more.
A shorter job leaves you with less experience and a lower amount of work for you to show off. It can also make it hard to maintain your own workforce. Whereas regular jobs, even at low rates, can be more beneficial in the long run.
You need to account for your taxes and related expenses in your quotes
This will come as no surprise to those who have been self-employed for a while. As with any client payment, you will need to deduct your own income tax. You will also need to contribute to your insurance costs and social security.
This is one area where being employed has the advantage, as employers will pay half of their employee’s insurance and social security. They also automatically deduct tax. But, this is a necessary trial that every entrepreneur must go through.
Your tax returns and practices are (slightly) different from a regular self-employed person
Like expenses, this is often just an oversight by many independent contractors. Because of the nature of the contracts used, contractors will need to receive a summary of their income from each contract on a 1099 MISC form.
This is different to any other income from services purchased by private individuals. This would be included in your overall income.
So, be sure to have your paperwork in order to ensure you don’t get misclassified or overtaxed.
Any intellectual property is your own unless otherwise specified
This is another big advantage to being an independent contractor. It’s especially useful for IT workers or artists, who may create some products as part of their project.
Fortunately, you have the right to these creations. Only the intended product belongs to the paying client. That is unless the contract states otherwise. This is not the case with employees, where the company has the right to all intellectual property. So, be careful to review your contract to ensure you know where you stand with your intellectual property.
Diversity and flexibility are your biggest assets
The single biggest advantage of being an independent contractor is your ability to work for multiple clients, or in different fields.
This might seem obvious. But, for newly self-employed people, it can seem unnatural to work for different companies at the same time. Working in multiple different industries at once.
So, don’t be afraid to delegate some of your work to employees or take on contracts from multiple clients if you’re working as an independent contractor. This will allow you to maximize your income and further build your business.