Nowadays, labor needs and our capabilities incline us to look for alternatives or solutions to have a job. It’s well known that not all people are employees in a company, many, according to their professional background, decide to be independent contractors. But what is this? In the following article, we will explain what it is, its benefits, and its cons.
What is an Independent Contractor?
When a company or an individual requires some tasks or work to be done, there are two options available, being an employee or an independent contractor. An employee is a person hired on a fixed basis to provide services to his or her employer in exchange for a constant payment, i.e., a salary. An independent contractor is a person or a company, which provides its services to its clients, whether they are a company or an individual, for a defined and pre-established fee from the beginning.
An independent contractor is usually understood to be a neutral person, or a person not related to a company. Such as a lawyer, an accountant, a plumber, an electrician, an engineer, or any other person with a professional title or sufficient training to provide services to his client or a third party on behalf of the client. In other words, an independent contractor may work for a company, doing specific jobs for which he is hired for specific events. This, of course, is always accompanied by a contract between the independent contractor and the client, whether the client is an individual or a company.
It’s important to emphasize that an independent contractor may be represented by himself or by a company in which he or she is the owner and legal representative. Practically, the independent contractor puts a brand name on his or her work but is still the independent contractor himself or herself. Sometimes a contract called a Service Contract is signed and covers only the work for which he/she was hired and establishes the period of execution of the work.
What is an Employee?
An employee is a person, individually, who works for the employer, on a regular basis, i.e. with a fixed schedule and a fixed remuneration, called salary, and the company has total control over the employee’s duties, including when and how he/she must perform. The terms, duties, and obligations of employment are set forth in a contract known as an Employment Agreement, which is usually signed with the legal department of the company.
The process for hiring a job is called recruitment, and a search is made among a certain number of people for the one or ones with the best preparation, experience, and availability of schedule, since sometimes the job may be part-time, full-time, or temporary.
The work for which the employee is hired is specific, with determined tasks, duties, responsibilities, and authorities. The salary is monthly and fixed.
Pros of being an Independent Contractor
- Earnings can be higher. This would definitely be the main reason to be an independent contractor. The reasons are very obvious. Being your own boss, may represent that the profit is complete for you. In the case of employees, your salary is diluted in paying benefits, such as pension, subsidized health insurance, which independent contractors would have to purchase separately.
- You own your time and your work. By being self-employed you can choose which jobs you want to take and which you don’t, perhaps because they don’t suit you, financially speaking. Even when you do a job for a company, you decide for what period you will work and whether you decide to continue or terminate a contract.
- Tax benefits. Being self-employed you don’t need to withhold payroll taxes, although you do have to pay estimated taxes 4 times a year, directly to the IRS. In a way you can say that you have the flexibility to decide how much tax to pay, as long as it’s not less than what you declare. In addition, there are tax deductions, which employees don’t have access to, such as deducting operating expenses, even if the office is at home, travel, entertainment, meals, equipment, insurance of many types, etc.
Cons of Being an Independent Contractor
- Nothing guarantees that you will have a job. While we mentioned earlier that you can earn more money, the reality is that you need to put in the work yourself to get the contracts. Without them, there is nothing. If you don’t have savings for times of crisis, when people don’t look for freelancers, you can end up bankrupt.
- The administrative and accounting work is up to you. Independent contractors must take on all the additional burdens of conventional work, such as filing tax returns, doing the income and expense accounts, so it’s very likely that an independent contractor will end up hiring someone else to do the administration for them. This can turn into a capital drain by having to outsource.
- You are not indispensable. Owning your time-limited contracts is also a double-edged sword, as you can sell out at any time, without much notice. By relying on temporary jobs, if there are sickness or accident expenses, you must cover everything yourself. And in case of dismissal, there’s really not much to do.
It’s complicated to decide which is better. Being self-employed or employed, however, one certainty in both cases is that using up-to-date technological tools will always be of great use. For example, in both cases, you will need the best paystub generator on the market to generate your payroll and calculate your taxes. It can also be useful to have an impeccable administration with software packages designed for your conditions. No matter if you are an employee or an independent contractor, both need to understand and know their obligations, duties, and rights before their employer and the government.