What’s the difference between an independent contractor and self-employed?
‘Independent contractor’ and ‘self-employed’ may seem like similar work status classifications, and they’re often used interchangeably. Understandably so, because both refer to individuals who work for themselves. But there are three key differences between them:
- Self-employment refers to different forms of working for oneself, including independent contracting.
- Self-employed workers own the company where they work. Independent contractors work with various business entities but they don’t have ownership in them.
- Both self-employed workers and independent contractors each have distinct legal and tax implications.
What complicates things further is that federal, state and local governing authorities might have different classifications for self-employed individuals and independent contractors. For example, what the IRS considers ‘self-employed’ may not be aligned with another federal agency or state government.
What are the benefits and drawbacks of being an independent contractor?
Independence is the cornerstone of an independent contractor. It means:
- You’re free to work with whomever you choose.
- You can negotiate your fees for each service performed.
- If you’re working on different projects, you have great variety in your work.
- Your income can potentially be higher.
- You can deduct expenses from your income taxes to reduce your tax rate.
As with everything, there are drawbacks to being an independent contractor as well:
- You have to drum up your own sources of business.
- Your income can be inconsistent — especially if your work is seasonal.
- You must make sure you’re tax-compliant.
Do independent contractors need small business insurance?
Independent contractors could benefit from coverage from potential losses and liabilities.
For example, if you’re a contracting financial advisor and a mistake in your paperwork accidentally leads your employer to lose out on significant tax advantages, they may take you to court. Business insurance could help you recover the cost of damages and legal fees so you don’t have to pay out of pocket.
What type of insurance are most important for independent contractors?
Many independent contractors consider:
How NEXT helps independent contractors
NEXT provides fast, affordable independent contractor insurance customized to your specific business needs.
Apply online, answer a few questions and get an instant quote in less than 10 minutes. Once you’ve chosen coverage, you can get a certificate of insurance and share it 24/7 via web or app.
If you have questions, our licensed, U.S.-based insurance professionals are ready to help.
Start a free instant quote with NEXT today.