When launching your own business, it’s incredibly easy to get swept up in all the jargon.
It probably seems like there is a term for everything, a complex acronym around every corner, and before long, your head can begin to spin.
One common example of this is trying to understand the difference between being self-employed or an independent contractor. While the terms are often used interchangeably (correctly, for the most part), there are some differences between the two.
Here, we will discuss the similarities and differences between these two terms and help you establish what you should be referring to your services as.
If you like this content, check out our recent article on the difference between subcontractors and contractors.
Don’t Skip: How to Start Freelancing in 6 Steps
Short on time? Here are the key takeaways:
- All independent contractors are technically self-employed, but not everyone who is self-employed is an independent contractor.
- Independent contractors may require specific licenses or special skills for their work, which is not always the case for all self-employed people.
- Both self-employed and independent contractors must submit their own tax invoices at the end of each year, unlike employees.
What is an Independent Contractor?
Firstly, to help us understand the difference between independent contractors and self-employment is to establish what an independent contractor actually is.
Simply put, independent contractors are individuals that can control which jobs they work on, and how they go about completing that work.
Independent contractors offer their services to the general public, and while people often assume they are only in the construction industry, it also covers other industries, such as accountants, lawyers, and even doctors.
So how does that differ from self-employed?
Well, in a sense, it doesn’t! The only difference is that the blanket term “self-employed” refers to any independent contractors or sole proprietors, which is the term used for single-person businesses.
Can I be both an independent contractor and a sole proprietor?
In short, yes! It’s actually very common for any self-employed business owners to get classed as both. It just depends on what service you provide.
For example, if you are a digital designer that decides to set up their own design agency, the quickest and easiest option is to set up as a sole proprietor, as you don’t need to create a corporation and other forms that need to be filled when setting up as a business.
If a company then acquires your design services on a semi-regular basis, this could be done through an independent contractor relationship, whereby a formal contract is agreed, in return for your services.
Frequently Asked Questions About Becoming Self-Employed
What does it mean to work as an independent contractor?
Working as an independent contractor means being self-employed and providing services to clients or companies on a contract basis, without the protections of traditional employment, but with much more work autonomy.
How do I set myself up as an independent contractor?
To set yourself up as an independent contractor, you need to establish a legal business entity or operate as a sole proprietor and you have positioned your business well to attract new clients.
Why choose to become an independent contractor?
1- Independence and flexibility. 2 – Potential for higher income. 3 – Pursue multiple projects simultaneously. 4 – Tax advantages. 5 – Build a diverse portfolio of work.
{
“@context”: “https://schema.org”,
“@type”: “FAQPage”,
“mainEntity”: [
{
“@type”: “Question”,
“name”: “What does it mean to work as an independent contractor?”,
“acceptedAnswer”: {
“@type”: “Answer”,
“text”: “Working as an independent contractor means being self-employed and providing services to clients or companies on a contract basis, without the protections of traditional employment, but with much more work autonomy.”
}
}
, {
“@type”: “Question”,
“name”: “How do I set myself up as an independent contractor?”,
“acceptedAnswer”: {
“@type”: “Answer”,
“text”: “To set yourself up as an independent contractor, you need to establish a legal business entity or operate as a sole proprietor and you have positioned your business well to attract new clients.”
}
}
, {
“@type”: “Question”,
“name”: “Why choose to become an independent contractor?”,
“acceptedAnswer”: {
“@type”: “Answer”,
“text”: “1- Independence and flexibility. 2 – Potential for higher income. 3 – Pursue multiple projects simultaneously. 4 – Tax advantages. 5 – Build a diverse portfolio of work.”
}
}
]
}
Keep Learning: Subcontractor vs Contractors
Ensure Your New Business Gets Off to a Flying Start
Now that you’ve established the clear differences between self-employment and being an independent contractor, it’s time to ensure your new business gets off to a flying start!
Check out our FREE training, designed to help you with every aspect of setting up your business and ensuring it is a huge success.
The post Independent Contractor vs Self Employed: What’s the Difference? appeared first on Foundr.
