Picture this: you wake up at whatever time you like, choose an outfit in line with the dress code you set, and only do the work you can take on during the day. Sounds appealing, right? This is mostly an independent contractor’s (IC) life.
There’s freedom in working for yourself and being your own boss. You make all the rules. But with that freedom comes great responsibility. Reporting to yourself may feel liberating, but it also means you’re solely responsible for making ends meet. And, while the “my life, my rules” mantra lets you create a one-of-a-kind business, doing so is mentally, creatively, and emotionally taxing for some.
We live in an era of entrepreneurs –– people want to move from the 9–5 culture to a more flexible, passionate one. And, if you’re gravitating toward self-employment, you must have googled, “is it better to be an employee or an independent contractor?” Well, there’s no one right answer to this question. But we’ll help you identify the pros and cons of being an independent contractor.
However, before we dive into the advantages and disadvantages, let’s understand the world of ICs.
What to know about being an independent contractor
If you’re considering working as an IC, you likely have a few pertinent questions –– are independent contractors self-employed? Are they the same thing as freelancers? Do they file their own taxes?
Firstly, ICs and freelancers are the same. The U.S. Internal Revenue Service (IRS) only has two designations for individual taxpayers: independents and employees. According to the law, anyone who doesn’t receive a wage but earns by invoicing clients is an independent.
Speaking of the law, there are critical distinctions to make — at least for U.S.-based freelancers. If you’re an IC, you benefit from deducting your business expenses but are solely responsible for contributing to social security tax. Companies take over part of this tax responsibility for regular employees.
Before we further explore the pros and cons, one final distinction is the difference between ICs and self-employed workers. All ICs are self-employed, but not all self-employed people are ICs. That’s because contractors work directly with clients and receive payment from them, while self-employed individuals may work through a third party, such as an agency or gallery.
4 benefits of working as an independent contractor
ICs generally enjoy more freedom than employees, but instead of making value judgments, let’s jump right into the facts. Here are some perks to weigh:
- You make your own rules: Not only do you decide your working hours and attire, but you’re also free to take on a limited number of clients and projects to ensure a healthy work-life balance. You can even figure out your charges based on your services’ bandwidth.
- You (may) pay less income tax: As a freelancer, you don’t have to withhold taxes like company-employed people. Instead, you’ll file taxes directly with the IRS (or through an accountant) and deduct business expenses from your revenue to determine the total taxable income. These tax deductions help lower the amount you’ll owe to the IRS, but remember that you also contribute solely to social security. At the time of writing, this contribution is roughly 15% of your taxable earnings. Depending on how much you make and can deduct, you may pay fewer taxes than a regular employee, but you’d have to run your own calculations.
- You don’t have to depend on an employer for a monthly income: As an IC, you earn a salary based on the number of clients served and your services’ price points. No third party assigns you tasks or pays you. However, consider your geographic area’s market standards when finalizing charges to ensure clients can afford your services. Plus, take on however much work you can handle to maintain peace of mind.
- Gain flexibility: Not only will you set your own schedule, but you’ll also choose where to work. Send emails from a poolside lounger or an office space –– your clients won’t mind.
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4 drawbacks of working as a contractor
Contractor work may sound dreamy, but there are downsides to consider. Review the following points to make an informed decision about whether it’s right for you:
- You take on more responsibility: As a contractor, you’re not only responsible for filing and paying your taxes correctly, you have to find your own health benefits such as an insurance plan. You need to save for your retirement fund.
- It takes time and money to get started: To jump-start your practice, you’ll need basic electronics such as a laptop, a reliable customer relationship management (CRM) tool, and online software to organize your work. Not only that, but you’ll also invest in furniture for your clients and create a dedicated office space. You’ll market your services –– maybe run paid ads on social media to drive traffic to your website –– until the business takes off. Later, you can rely more heavily on word-of-mouth referrals.
- Contract work lacks job security: Freelancers don’t have severance packages if work dries up. Be prepared with a rainy day fund. Although establishing a stable workflow is possible, you might run into limited funds in your bank account. Sometimes, despite a signed agreement, clients pay late or withhold payment. And no one wants to file a lawsuit to receive their earnings.
- Burnout is real: Because freelancers make more money if they work longer hours, they may push themselves past their limits. You may take on an additional project and work well past 5 p.m. or over the weekends. Overtime can be worth it if you have a short-term financial goal, but overworking isn’t sustainable and could lead to burnout. Plus, freelance work has no paid vacation time, so you must save up for it.
Tips for a successful freelance career
Weigh the pros and cons to make informed decisions. But you can tackle some cons by planning well and having the right tools for your job. Here are some tips on how to ace your career as a freelancer:
- Establish your offering: Decide what services you will and won’t provide, and research the market to understand your peers’ price points. Set reasonable charges to invite an increasing number of clients.
- Manage your working hours: Create a schedule so you work for a predetermined amount of time. Reward yourself with a latte every Monday morning and wrap up Fridays with a walk or a rejuvenating workout to maintain a healthy work-life balance.
- Market yourself well: Reach your target audience on all social media platforms, and run paid ads on search engines to boost visibility. That said, don’t forget offline media, such as print ads, to reach the masses. Consider continuing your existing job when launching your first marketing campaign to avoid cash burn. Try independent contracting part-time, and scale up when your business takes off.
- Outsource: If you're worried about making a mistake on your tax returns, seek help from an accountant. If your services contract isn’t airtight, have a lawyer take a second look.
Get the best of both worlds with the right tools
Take advantage of the independent contractor benefits while enjoying the stability of being an employee. Invest in premium-quality equipment, a proper CRM software, and secure payment tools.
Practice’s platform, designed with coaches in mind, helps you safely store client data, take bookings, send messages, and receive payment. It provides peace of mind and makes your days more productive. Try it today.
