Independent Contractor VS Self Employed | 6 Key Differences


Independent Contractor vs Self Employed

Quick Summary : In this blog you will learn about

  • Difference between independent contractor vs self employed
  • Insurance and tax on both
  • Pros and Cons of independent contractors

Table of Contents

Those who work for themselves are referred to as self-employed. Self-employed and independent contractors are two different terms. Generally, all independent contractors are self-employed, but not all self-employed people are independent contractors. So lets explain it side by side :

Who is self-employed ?

Simply being self-employed is a person who doesn’t work as an employee for someone. According to the Internal Revenue Service, a person is considered self-employed and carries a business as either a sole proprietorship, independent contractor, or business owner himself. So anyone can be self-employed, ranging from a doctor to a sculptor.

Self-employed examples :

  • Freelance writer.
  • Independent business consultant.
  • Local handyperson.
  • Food truck owner.
  • Farmers.

Who is Independent contractor ?

A person or a company that performs contractual-based tasks is not a proper employee. For example, for someone who works as a handyman and gets hired to perform a particular repair in a house, the handyman will not become an employee but will work as an independent contractor.

The family will not become the employer, and only that work will be performed by the handyman for whom he was contracted. An independent contractor is a self-employed person that serves others. So someone who doesn’t make the products and sells them to the general public is self-employed but not an independent contractor.

Generally, someone is an independent contractor if the payer has the power to control or direct the outcomes of the work and not the way work has been done or how it will be done.

  • Doctors
  • Veterinarians
  • Dentists
  • Lawyers
  • Contractors
  • Accountants
Good Read : What is Form 673 ?

Self Employed vs Independent Contractor | 6 Key Differences

  • The significant difference between an employee and an independent contractor is that an employee is hired by an employer and regularly works while paid a fixed amount. In contrast, the independent contractor is a self-employed who gives the services to other organizations for a fixed amount of compensation.
  • The source of income for the independent contractor is the individual project they work on. For the self-employed, the source of income is the salary.
  • The employee works for only one employer, whereas the independent contractor works for multiple clients.
  • The employer’s directions control the self-employed person, whereas the independent contractor does not have the employer to dictate them.
  • The independent contractor uses his resources to perform the task. The self-employed person is provided inputs like the employees’ tools, materials, and equipment.
  • The independent contractor has a fixed payment for the services they must deliver. They have the right to increase their service charges or pay if it needs extreme skills, time, and effort. This increase in their fee becomes part of their fee or commission and will not be considered the profit. The difference is that self-employed individuals make a profit occasionally. Especially those in the trade or business industries make a profit as they don’t charge money in terms of fees.

Insurance Policy

Independent contractors :

Independent contractors should mostly buy general liability insurance. As a 1099 contractor, just like any other small business owner, you can be held liable for damaging the other person and their property. Such types of risks can be avoided by general liability. General liability insurance may also be needed to comply with your client’s contractual needs.

Self-employed :

Many self-employed people consider income protection insurance and critical illness cover if they get too sick or injured to work or get an illness. Those having dependents such as partners and children mostly go with life insurance. Several other personal insurance products can also be considered if you are self-employed.

License and Taxes

Independent contractors :

Some independent contractors of certain professions need a licensed practitioner to work in that field. Some of such examples are medical, legal, and financial professions. The same is the case for some self-employed persons who need a license to work for a business, such as those working in the food industry.

Self-employed :

Whether you are self-employed or not can significantly impact your tax liabilities, so talk to an accountant or tax attorney if you need advice about being a self-employed worker or independent contractor. They will be able to help you verify the difference between a self-employed and an independent contractor and make sure you are filing correctly.

Read Also : How Does Unlimited PTO Work ?

Pros and cons of independent contractors

  • You are your boss
  • Greater control over the work you accept
  • You can earn more money
  • Tax benefits from expense deductions
  • Must withhold your own FICA taxes
  • Must buy their health insurance and benefits
  • Must buy your equipment and tools.
  • May need a federal and state tax ID number


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