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Benefits and Disadvantages of Being an Independent Contractor

November 4th, 2009 1 comment

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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