If you want the flexibility and freedom of freelancing and the stability and routine of being a full-time employee, working as an independent contractor can be the best of both worlds. The main benefit of being an independent contractor over an employee is that you have more control over your career and the companies you work for since you get to negotiate each contract. Independent contracting is becoming increasingly popular as an alternative to being a full-time employee for those who don't want to freelance.
Unlike a freelancer, who usually has multiple clients and projects going at the same time, independent contractors sign a contract to work a set number of hours (full or part-time) during a fixed term for an employer. The length of the agreement could be just a month, or it could be more long-term, up to a year. Each contract has a set start and end date, which the company can extend if the project isn't over.
What is an independent contractor, legally?
Independent contractors are legally self-employed professionals who offer their services to companies through contracts under a 1099-NEC tax form (in the U.S.). Independent contractors control when, where, and how they do their work. The employer sets the deliverables, and the independent contractor gets to choose their process for meeting these deadlines. The level of control and autonomy are the main differentiators for independent contracting regarding worker classification.
Depending on your industry, specific services, and where you live, you may need a business license before you can start accepting contracts. As a self-employed person, you typically are responsible for your own taxes, insurance (both personal health insurance and any liability insurance for your business), and any licenses you need to perform your services. Before applying and accepting contracting jobs, research your local and state laws to see what you need to do before you get started.
7 benefits of being an independent contractor
As an independent contractor, you get to set your rates and choose which contracts to say yes to, all while typically working from home. You can see what it's like to work at different companies and in various industries, as well as test-driving roles and employers. Independent contracting is an appealing alternative to working as a full-time employee for those who want longer engagements than freelancing.
Before deciding to become an independent contractor, take these benefits and drawbacks into consideration:
The government views independent contractors as self-employed individuals who own their businesses. While this means you are responsible for paying your taxes, you also get business deductions that employees do not. Independent contractors pay self-employment taxes.
As an independent contractor, you are responsible for supplying your own equipment for each job without reimbursement from your client. If you work remotely, you must set up your own home office, computer, and any software you need. The upside is you can deduct these expenses directly from the income you earn as a contractor.
Examples of possible deductions:
- Home office
- Health insurance premiums
- Internet and phone
- Business travel expenses (including meals)
- Vehicle use
- Business loan interest
- Business insurance
- Retirement savings
As an independent contractor, you have more opportunities for pay growth because you can negotiate your hourly rate with each new contract. Employees sign a contract and are locked into their salaried pay unless they ask for a raise or promotion. If you gain experience and new skills during one contract, you can negotiate a higher salary for your next contract. You can theoretically have more frequent pay raises and more earning potential as an independent contractor if your skills are in high demand.
Some independent contractors work directly with clients, applying to contract jobs through job boards or Upwork, while others work with agencies who fill contract positions for companies. Depending on the contract, you may work full or part-time. Some independent contractors choose to work contracts part-time for a steady income and then freelance on the side to develop new skills and increase their income potential.
Depending on where you live, full-time employees may receive healthcare benefits through their employer. The employer chooses the provider and plan options for all employees at the company. Employees may get some choice in the level of coverage and what specific plan they choose, but sometimes get stuck with plans that don't cover everything they need it to. As an employer, choosing a plan that works for everyone is challenging.
When working as an independent contractor, you are responsible for your own healthcare, which means you can choose the best plan and provider that fits your needs. Contractors can shop the healthcare marketplace and choose from a variety of plans. While you have to pay for your health insurance (but may be able to deduct the premium), you have more choices in your plans and coverages.
Work hour flexibility
Many independent contracting jobs do not require you to be online at a certain time unless it's for a meeting or specifically related to the project. Part of being classified as an independent contractor versus an employee is setting your own hours and choosing when and how to complete your work.
You may sign a full-time contract, but it'll be up to you when you're online and working. You may work 9-5 or choose other hours that fit your week best. One of the main draws of being an independent contractor is working from home and creating a schedule that works for you.
Compared to full-time employees, independent contractors should have more flexibility in their day-to-day. They're responsible for meeting their deliverables and working the hours they agreed to. Managers and employers tend to be more hands-off with contractors since they're often specialized talent brought on for a specific project. Contracting is output-oriented, and while you may be part of a team and need to collaborate, you typically have more independence.
Ability to gain new experience
When working as a full-time employee, you often have a set list of responsibilities that correlate with your job title. Unless it's a small company or start-up, these responsibilities don't change much without a promotion or lateral move. Some employees work at a job for many years, with their day-to-day staying the same. If you wanted to learn new skills or work on something different, you would have to do this on your own time or try to get your manager to approve the new training.
Independent contractors work for shorter periods, leaving more opportunities to gain new experiences and develop new skills. Companies hire contractors for a specific project and expertise. You can work on developing a new skill, and then when it comes time to find a new contract, add it to your resume and start gaining experience. Every contract is a chance to make more connections and learn about different industries, products, and companies.
Contractors get to try working at different companies and industries to see what they like best. While your job title may be the same, your responsibilities could vary greatly from job to job based on the company and the project. You quickly gain on-the-job experience as you onboard and work with new software and tools.
Work from anywhere
Independent contractors can be true digital nomads if the contract allows it. Most independent contracting jobs are remote, but some may require occasional time in the office if you need to use company tools or attend meetings. Control over when, where, and how you work is one of the key differentiators between contractor and employee classification. Still, a contract can have exceptions that require you to be in office.
You get to choose which contract you say yes to. So if you want to work remotely or even travel, you can pick those contracts that are flexible enough to enable that lifestyle. As long as you have a strong internet connection and meet your deadlines, you should be able to work from anywhere in the world.
When you work remotely, you may find that you have more time in your day. You don't have to commute (unless you want to work from a coworking space or coffee shop) or pack a lunch (you can cook at home or go out). If you want to take an exercise class or run an errand, you can schedule that into your day.
Choose who you work and don't work with
Imagine going to bed on Sunday evenings without feeling stressed and dreading work on Monday (AKA Sunday Scaries). Isn't that the goal? One of the main causes of work stress can be interpersonal conflict, whether it's with a teammate or your manager. As an independent contractor, you have more flexibility in who you work with. You can take short-term contracts to test out what different employers and managers are like, and if you don't have a great experience, move on to the next.
These contracts allow you to learn about your work preferences and the type of industries, teams, and management styles you like best. Each contract will give you more insight into what to look for in your next contract.
Another contributor to work stress is boredom—working on projects that don't match your interests or skills. Clients hire independent contractors for specific projects, and when you sign a contract, you should know exactly what you will be working on and your day-to-day responsibilities. You can choose only those projects and contracts that interest you and require the right skills.
5 Challenges of being an independent contractor
Every type of employment, whether you're self-employed as an independent contractor or freelancer or are a full-time employee, has its own set of challenges. You have to figure out what works best for you and your lifestyle. As an independent contractor, you have more freedom than an employee, but you also have more responsibility. You are self-employed, so you have to market your business, handle your taxes, and your income may fluctuate more than if you had salaried income as an employee. Keep these challenges in mind as you evaluate whether or not independent contracting is for you.
As an independent contractor, how much you make depends on each contract and what you negotiate. Some contracts may pay better than others, depending on the industry, job title, and company size. You could have another contract lined up to start as soon as your current contract ends, or you might have a break in between.
Compared to an employee, where you have a set salary and know exactly how much income you will have each month, what you make as an independent contractor can vary. You have the opportunity to earn more since you get to negotiate and choose what contracts you say yes to. You could also have periods where you struggle to find jobs that pay as much as others, especially if your services have seasonal demands.
Like any other small business owner, you are responsible for your services. Rather than being a part of a team, you may work on projects independently. You must complete them on schedule and maintain the quality, accuracy, and other deliverables you promised your client.
If you were a small, independent coffee shop that advertised delicious locally roasted coffee and baked goods, that is what your customers would expect. You want to fulfill your promises to your customers and have them leave happy and telling their friends about your excellent coffee shop. They could ask for a refund and leave a bad review if your coffee or goods didn't taste good or if they had a negative experience. When you work as an independent contractor, you are responsible for providing the services customers purchase from you at the quality advertised—these are your coffee and baked goods.
Some independent contractors require liability insurance, depending on the type of services they provide and the industry. This insurance separates you from your business, so if a customer files a claim, it is against your business, not you personally. Liability insurance is more common for physical services that a contractor provides that could damage someone or their property, like an independent contracting plumber or a dentist, rather than someone working in marketing.
Managing your own taxes
Unlike a full-time employee, companies do not need to provide healthcare, paid time off, retirement planning, and other wellness benefits to independent contractors, even if they work full time. Taxes (e.g., income, social security, medicare) are typically not withheld from an independent contractor’s paycheck, so when you prepare your taxes, you'll need to pay them. Many employees who have taxes withheld from their paychecks by their employer end up getting money back as tax returns when it comes time to file. Independent contractors, on the other hand, often have to pay (but do get to take business deductions).
As an independent contractor, taxes can be challenging. You may need to pay quarterly or annually. Over the course of a year, you may have completed many different contracts and have more than one 1099 or W-9 form to report. When doing your taxes as a contractor, you also want to add your deductions.
You may need help filing your taxes as an independent contractor. You can find a local certified public accountant (CPA), a tax preparation service like HRBlock or TurboTax, or get help from an independent tax professional on Upwork to make it easier.
Marketing your services and business
Part of working as an independent contractor and being self-employed is marketing your services to clients. You may need a personal website, and to spend time looking for potential clients directly or through Upwork. Depending on how long your contracts are, you may spend significant time marketing and working on proposals in between.
How to market your services as a contractor:
- Build a business website. Showcase your skills, experience, best projects, and make sure you have a way for interested clients to contact you.
- Post on social media. Create a business account or post on your personal accounts samples of your work and let your friends, family, and colleagues know when you're looking for new clients.
- Create an up-to-date online portfolio. Build a portfolio online on your website or Upwork profile where potential clients can see your most recent and impressive work samples.
- Reach out to companies directly. Even if you don't see any jobs open on their website, you can send cold emails to companies you think would benefit from your services.
- Network. You never know where your next lead may come from. Let those in your circle know that you're looking for new clients.
Some contractors choose to work with agencies. These agencies work with companies to fill contract positions for a fee, taking a commission off each position they successfully fill. When working with an agency, they negotiate for you, you tell them what your ideal hourly rate is, and then they try to find projects in that range.
As an independent contractor, you have many high-paying offers at once, followed by drier periods where you don't have a lot of exciting projects coming your way. If your services are seasonal, you may be in high demand during part of the year and then less busy during other times. The lack of predictability can make work-life balance difficult, but you can manage with the right productivity tools and schedule.
Tips for managing work-life balance as a contractor:
- Create a schedule. Having a set schedule is extra essential when working from home. Know when you want to start working and what time to try to finish by each day.
- Determine your working hours. Let your clients know when you will be available and "leave work" each day by logging off and trying only to check the most important emails and messages.
- Avoid over-promising. Before saying yes to new deadlines and projects, check your schedule to see if you can reasonably deliver with your current workload. Saying yes to each new project that comes your way can be tempting but ultimately create an overly demanding schedule.
- Be clear about deliverables. Before starting a new contract, make sure you know exactly what the client wants and how long it should take you to complete.
- Remote distractions. Schedule time to work without notifications or your phone so you can get in a “flow state” and be the most productive. Tasks can take longer, and quality can suffer, when you’re distracted.
- Schedule breaks. Give yourself time to breathe and step away from work; it can help with productivity and creativity. Go for a walk, stretch, and listen to music away from the computer.
- Designate a work area. Having a set space to work at home that you can clean up and put away for the day can help you mentally "clock out" so you can unwind and not feel like you're working 24/7.
See why so many independent contractors use Upwork to find the best work
Upwork's Talent Marketplace™ makes finding the right contract jobs easy. You can filter your search by category, hourly or project rate, client location, timezone, hours per week, and project length. Submit proposals to jobs that interest you, interview with clients, and get paid all through Upwork. Clients turn to Upwork to find the highly specialized independent talent they need for their short- and long-term projects. See what jobs are available right now that fit your skill set. It all happens right here.
This article is intended for educational purposes and should not be viewed as legal or tax advice. Please consult a professional to find the solution that best fits your situation.
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