If you talk to someone about their work, and they say they’re an independent contractor, do you know what that means? Might you decide that it’s something you want as well? You should ponder these questions very carefully if you are thinking about what career path you might pursue.
Independent contractors operate differently than contracted employees in certain ways. However, they also have some similarities.
In this article, we will briefly go over independent contractor status. We’ll talk about what it means, whether you want it, and what benefits and possible drawbacks come with the territory if you take your career in that direction.
What Does the Term Independent Contractor Mean?
If you have independent contractor status, that basically means that you employ yourself. In other words, you’re your own boss.
You can look at this situation in a slightly different way if you’d like. Let’s say someone hires you to do something. You’re providing a service or product. They control the work’s result, meaning they will only have to pay you if you successfully provide what you said you would.
However, the individual who will pay you for fulfilling the contract’s terms can’t dictate how you will provide that service or product. Essentially, you’re the one governing your actions. As long as you provide the product or service that you said you would, then, according to the contract, the person employing you must pay you.
That might confuse you a bit, so here’s the same concept rendered simpler. If you’re an independent contractor, and someone hires you, then you must fulfill the contract’s terms. The person who hired you can’t control how you do so, provided they approve of the end result.
What Benefits Does This Status Have?
If you think about what working for a company entails in a more traditional sense versus how you can conduct yourself if you have independent contractor status, then you will probably see pretty quickly how having this status might benefit you. Let us say you’re working for a company in the traditional sense. They interview and hire you. You must now do what your boss says.
Apart from that, though, you must also conduct yourself how they see fit, within reason. As long as they have you doing something lawful, they can not only tell you what to do, but also how to do it. That is not the case if you have independent contractor status. If you maintain this status, then you have more freedom. You don’t have a boss, per se. Instead, you have a client. In some cases, you may have many clients, and you’re providing them all with the same or similar services.
If you’re an independent contractor, you can terminate a relationship with a client who’s not working out much more easily. You can extricate yourself from relationships with clients with less effort than what you’d experience if you quit your job.
You should also understand that if you’re working at a more traditional job, and you don’t have independent contractor status, then you’re basically putting all your eggs in one basket. If you quit this job, or if your boss fires you, then you will probably lose your sole income stream. That’s often not the case if you have independent contractor status. If you do, and you have many clients, then you can potentially lose one while still having multiple other revenue streams. It’s another reason why many individuals crave this employment status.
What Potential Drawbacks Does It Have?
Having independent contractor status does have some potential drawbacks, though. Let’s say you’re an independent contractor. You provide several different clients or companies with a service or product that they need.
If you have this status, then none of these companies need to offer you the perks that you might get from a company if you worked for them in a traditional way. For instance, you probably won’t have a 401K with employer matching. You won’t have stock options or paid vacation days. You won’t usually have insurance through any of your clients or customers, either. This means you must purchase it yourself.
You can often do that through the Affordable Care Act, sometimes called Obamacare. This health insurance structure lets you buy a policy through a state’s marketplace. That’s often expensive, but, as an independent contractor, it’s typically your best option.
You can see how not working for a company in a more traditional sense might have some drawbacks. However, you can work around some of the issues we mentioned.
For example, if you can’t have a 401K through your clients, then you can open a traditional or a Roth IRA on your own. You won’t get employer matching, but these kinds of retirement accounts serve basically the same purpose.
What Kinds of Individuals Have Independent Contractor Status?
Many kinds of workers have independent contractor status. Many professional wrestlers have this kind of status. They might book dates with multiple promotions if their employers consider them independent contractors.
Someone on a site like Etsy will have independent contractor status. They will sell their wares through the site and give Etsy a cut. However, Etsy does not technically employ them.
Someone who offers professional services through a site like Fiverr or Upwork has independent contractor status. They may offer copywriting, marketing, or web design services. Someone who offers such services may maintain profiles on several different websites at the same time in order to have a sufficient number of clients to support themselves. Some people love having independent contractor status. It may seem a little different or frightening if you go to that status after working for a single company in a more traditional way for many years.
It’s probably not accurate to say that independent contractor status has inherent superiority over a more traditional employment setup. Both have distinct positives and negatives. Weighing the cons and pros before deciding on this career path makes sense.
