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Benefits and Disadvantages of Being an Independent Contractor

There are several benefits and disadvantages to being an independent contractor.

With greater freedom comes greater responsibility, and in general, tax and legal issues become more under your own control rather than your employer’s as an independent contractor. So, you will have to get acquainted with some of the basics when it comes to these issues, and you will probably end up hiring professionals to assist you with them.

As for personal preference, knowing whether or not you are better suited to be an independent contractor or employee is ultimately a matter of knowing your own strengths and weaknesses.

One obvious benefit of working as an independent contractor is that do not have a boss you must report to. This allows a great deal of freedom over when, where, and how you do your work. For self-motivated people, this is a benefit because these types of people do not depend heavily on a supervisor to get their work done. These types tend to do very well as independent contractors.

For people who need a little self-motivation, this might end up being a disadvantage. The lack of oversight can create procrastination habits in some people. Thus, many independent contractors struggle with keeping up with their tasks and staying focused because of not having someone to report to.

There are tax benefits to being an independent contractor. For example, the cost of any equipment purchased for your business is often tax deductible. Also, the cost of gas on business trips can be deducted, along with several other types of deductions. Although self employment tax and income taxes are deducted from your earnings as an independent contractor, the many other tax breaks you receive can help reduce the bite of those costs. For employees there are no such tax deductions for gas and other costs.

On the other hand, there are often benefits that employers give employees that independent contractors often do not receive. Although income and other taxes are often heavy on employee earnings, there are a number of advantages to being an employee which include unemployment insurance and workers’ compensation. If an independent contractor does not purchase supplementary insurance, he or she will not be covered in many circumstances.

Also, benefits such as paid vacation, health insurance, and child care are very rare for independent contractors, while employees may enjoy those benefits. Just the cost of health care alone may be enough to warrant being an employee. However, if as independent contractor you make substantially more income, you may be able to easily afford an individual or family health care plan.

So, ultimately the choice of independent contractor or employee comes down to the individual. Do you like having guaranteed and steady income, benefits, insurance, and someone to motivate you to work? If so, you are likely better suited to being an employee at a job with good benefits. However, if you are a self starter, highly motivated, good at marketing yourself or your business, and can make enough to pay for insurance, you may do well as an independent contractor.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

    May 11th, 2011 at 22:33 | #1

    Many employers want to hire you as an independent contractor (a 1099 contract person, I like to call it) but subject you to “their rules” that makes you legally an employee. The employer may save thousands of dollars a month and reduce their “labor liability” and thereby moving their labor costs on your back. However, if you have an existing business and are a true independent contractor and demand twice the hourly rate of what an employee would make (not counting benefits) this advantage/disadvantage/benefit discussion of being 1099 contract person vs. being hired as a out right employee may not pertain to you. I am trying to bring some light on the 2008-2011? depression era where employers are asking their new employees to come on board as an independent contractors but tell their new hires hey.. you work Monday-Friday 8am to 5pm

    Sorry I don’t have the time to go into this discussion in more detail, please contact your State Labor Board and/or the SCORE organization for free advice if you believe any labor laws might or will soon be violated in your particular situation. Sorry that I had to add the SCORE organization as a go to, however you may need free advice/answers quickly; and from my experience “State Agencies” and “provide you with “answers quickly” happen once in a blue moon.

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