What does it mean to be an independent contractor?
Being an independent contractor means that you are not considered an employee of a company, but rather you are self-employed and contracted to perform a specific task or service for a client.
Independent contractors may be more commonly known as freelancers, “1099 employees”, contributors, or consultants. Anyone can become an independent contractor—there is no special training required (though depending on where you live, you may need a business license).
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Benefits of being an independent contractor
1. Independent contractors get to be their own boss
As an independent contractor, you are your own boss. That means you can choose how much of a workload you want to do at a time. You can manage your schedule and workload according to your habits and availability. Being your own boss can provide you with a sense of control and freedom that can be very fulfilling and empowering.
2. Independent contractors have flexibility over their working hours
Independent contractors have the ability to control their working hours. Unlike a regular employee, you don’t have to put in a full shift—you can work as long (or as little) as you like. Although you’ll still have deadlines, you choose how you want to allocate your time to complete your work. Here are some examples of people who might greatly value this flexibility and control over their careers:
- Parents of young children can schedule their work around their family's needs. They could choose to work early in the morning or late at night when their kids are asleep, or they could take on shorter-term contracts that allow them to have more time with their family
- Students can work around their class schedule and exams. They can choose to take on more contract work during breaks or take on shorter-term contracts that allow them to focus on their studies
- People with a health condition can take time off work when they need to rest
- People with a passion for travel can use shorter-term contracts that allow them to take extended breaks between projects to explore
3. Independent contractors earn more (before tax)
Independent contractors tend to earn more than regular employees in the same business position. On average, an independent contractor will earn up to 40% more than an employee doing the same job. That’s because companies don’t need to pay social security tax, provide employee benefits, or provide equipment when they hire a contractor. This gives the freelancer the opportunity to request higher rates for their services and still be competitive.
Another reason for higher earnings is partially because taxes for an independent contractor are different than for an employee. Most independent contractors file as a sole proprietorship, meaning they’re the only person who owns and operates the business. As your own boss, that means you’ll be responsible for self-employment tax—in the US, these are Social Security and Medicare taxes. Since you pay a bit more in tax, it’s reasonable to charge a higher rate for your work.
4. Independent contractors can claim deductions
Independent contractors can make use of tax deductions that regular employees aren’t entitled to. These deductions let you claim business expenses such as equipment and business travel. Deductions offset your business income, allowing you to reduce the income tax you pay and keep more of your hard-earned money.
5. Independent contractors can experiment with business ideas
Working as an independent contractor is a great way to see whether you are ready to start and expand your own business. Nothing gives you a better idea of what it takes to manage a small business than actually giving it a go! As an independent contractor, you can test out new business ideas without needing to commit a lot of time or resources. You can identify which ideas are more likely to succeed, giving you the ability to build a sustainable business. Experimenting with different business ideas can help you discover what you are truly passionate about and find work that is fulfilling and meaningful to you.
6. Independent contractors gain more experience
Working as a freelancer can let you develop crucial skills that help you stand out in your field that you wouldn’t be able to develop as an employee. You’ll have the opportunity to work with a wider range of clients and on a wider range of projects than you would as an employee. Deep experience in various industries and job functions will make you a more well-rounded professional.
Because you work independently, you might also enjoy more responsibility and autonomy than you would as an employee. This allows you to hone skills such as decision-making, problem-solving, and other valuable leadership capabilities.
7. Independent contractors can stand out
As a contractor, you can choose to take on projects and clients that align with your goals and interests, allowing you to establish a niche or specialty. You’ll gain more targeted and relevant experience than you would as an employee who may be limited to the projects assigned to them by their employer. A niche expertise in a particular area or industry can make you more valuable to potential clients and help you stand out in your field.
As you complete projects, you’ll be able to build a portfolio of accomplishments that showcases your skills, expertise, and values. This can help you differentiate yourself from other professionals.
8. Independent contractors can work from anywhere
Your clients can’t decide where you work—you have the freedom to choose the setting that best suits your lifestyle. Many contractors work from a home office or in a coworking space, but you can even work abroad or as a digital nomad, working while traveling from country to country. Avoiding a daily commute gives you extra time to spend with family and friends, explore the city, or explore other interests and hobbies.
Control over your work environment can also help create a better balance between your work and personal life. This can help you avoid the stress and burnout that can come with a traditional 9-to-5 work schedule.
Balancing the Benefits with the Downsides of Being an Independent Contractor
Independent contracting comes with many benefits, as we have seen, but there are also some potential drawbacks to this career approach. When choosing whether to set up as a contractor, be sure to carefully and honestly take these drawbacks into account, comparing them to the benefits, and ensuring you strike a balance that truly works for your needs and preferences.
Potential downsides of working as a contractor may include:
Uncertain Income
Contractors face more uncertainty regarding their income. Projects can be intermittent, and there may be gaps between contracts, making financial planning more challenging compared to a steady paycheck.
Lack of Benefits
Contractors are typically not eligible for employee benefits such as health insurance, retirement plans, paid time off, or sick leave. They need to bear the cost and responsibility of these benefits themselves.
Self-Employment
As a contractor, you are considered self-employed, which means you are responsible for handling your own taxes, accounting, and legal obligations. This additional administrative work can be time-consuming and complex.
Limited Job Security
Contractors generally don't have the same job security as full-time employees. They rely on securing new contracts and maintaining a positive reputation to ensure a steady flow of work.
Absence of Structure
The freedom of being a contractor comes with the absence of a structured work environment. Some individuals may find it challenging to self-manage and maintain productivity without traditional work constraints.
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Ways to Find Contract Work
Finding contract work as an independent contractor can be both exciting and challenging. Here are some effective strategies to help you discover and secure contract opportunities:
Active networking
Tap into your professional network by attending industry events, conferences, and meetups. Engage in conversations, build relationships, and let others know about your skills and availability. Networking can lead to referrals and potential contract opportunities.
Online platforms
Make use of freelance job platforms such as Upwork, Freelancer, Fiverr, or specialized industry-specific platforms. Create a compelling profile that showcases your skills, experience, and portfolio. Actively search for projects that align with your expertise and submit well-crafted proposals.
Industry associations
Join relevant industry associations or organizations. Many associations offer job boards, forums, and networking events tailored to independent contractors. These platforms can help you connect with potential clients and access exclusive contract opportunities.
Referrals and recommendations
Build strong relationships with your existing clients and colleagues. Request referrals and recommendations from satisfied clients, as word-of-mouth can be a powerful tool for securing new projects.
Building a solid online presence
Establish a professional online presence through a website or a portfolio showcasing your work. Utilize social media platforms like LinkedIn to showcase your expertise and connect with potential clients.
How To Succeed as an Independent Contractor
Succeeding as an independent contractor requires a combination of skill, strategy, and professionalism. Here are some tips to help you thrive in this role:
Specialization and differentiation
Identify your niche and unique value proposition. Develop expertise in a specific area to stand out in the market and attract clients seeking specialized skills.
Professionalism and communication
Maintain a high level of professionalism in all interactions. Communicate effectively with clients, set clear expectations, and deliver projects on time and within scope. Building trust and fostering positive relationships is essential for long-term success.
Efficient Time Management
Implement effective time management strategies to maximize productivity. Set realistic deadlines, prioritize tasks, and create a schedule that allows for focused work and timely completion of projects.
Continuous Learning
Stay updated with industry trends, technologies, and best practices. Invest in your professional development by attending workshops, webinars, and conferences. By staying ahead of the curve, you can provide valuable services to clients and remain competitive in the market.
Excellent Client Service
Prioritize excellent client service by being responsive, attentive, and proactive. Strive to exceed client expectations, deliver high-quality work, and provide exceptional customer experiences. Satisfied clients are more likely to provide repeat business and referrals.
By implementing these strategies and maintaining a professional approach, you can increase your chances of success as an independent contractor.
Boost your career to new heights with Deel
Being a contractor can be an exciting career path filled with growth and satisfaction, but it also holds potential challenges and obstacles you will have to clear. The good news is that Deel has you covered all the way. In addition to our platform and tools to help make your contractor career management easy, we also have a host of information, tips, and advice, to ensure your work experience is always the best it can be.
Check out our blog for more.
Being an independent contractor FAQs
Q: What are the benefits of being an independent contractor?
A: There are several benefits to being an independent contractor. Some of the main advantages include:
- Flexibility in work schedule and location
- Potential for higher pay rates and the ability to negotiate rates
- Exposure to a variety of projects and clients, leading to diverse experience
- Autonomy and control over your career direction
- Tax benefits and deductions that can result in potential savings.
Q: What are the disadvantages of being an independent contractor?
A: While there are many benefits, there are also some disadvantages to being an independent contractor, including:
- Uncertain income and potential gaps between contracts, leading to financial uncertainty
- Lack of employee benefits such as health insurance, retirement plans, and paid time off
- Additional administrative responsibilities, including handling taxes, accounting, and legal obligations
- Limited job security compared to full-time employment
- The absence of a structured work environment, which may require self-motivation and discipline to maintain productivity
Q: How does being an independent contractor affect my taxes?
A: As an independent contractor, you are considered self-employed, which means you are responsible for handling your own taxes. This includes filing taxes as a self-employed individual, paying self-employment taxes (Social Security and Medicare), and potentially making quarterly estimated tax payments. However, being a contractor also offers opportunities for tax deductions and benefits that can help offset the tax burden.
Q: Do independent contractors receive any employee benefits?
A: Generally, independent contractors do not receive employee benefits from clients or companies they work with. This means you would not be eligible for benefits such as health insurance, retirement plans, paid time off, or sick leave. As an independent contractor, you are responsible for securing and funding your own benefits.
Q: Is being an independent contractor more lucrative than being a full-time employee?
A: Independent contractors often have the potential to earn higher hourly or project-based rates compared to full-time employees. However, it’s important to consider that contractors are responsible for their own expenses, including taxes, insurance, and other business costs. Additionally, contractors may experience fluctuations in income and may not have the same job security or stability as full-time employees.
Q: Can I still work as an independent contractor while having another job?
A: Yes, many independent contractors work on a part-time basis while having other employment or engagements. Being a contractor provides flexibility, allowing you to work on projects that align with your schedule and availability. However, it's essential to consider any potential conflicts of interest and ensure you can meet the demands of both roles without compromising the quality of your work.
Q: What legal considerations should I keep in mind when working as an independent contractor?
A: It's crucial to have clear contracts or agreements in place with clients, defining the scope of work, payment terms, and other important details. Additionally, you should ensure compliance with local laws and regulations regarding self-employment, taxes, and any necessary licenses or permits for your specific line of work.
