What Does It Mean To Be An Independent Contractor?

I'm going to answer from two perspectives. The first being when you’re the independent contractor, and the second being when you employ an independent contractor. 

#1 - When you’re the Independent Contractor

So, when you get a contract in your consulting business (because I know you will), you’ll be hired on as an independent contractor. In essence, that means that you are the opposite of an employee. This is because you don’t work for the organization, you work with the organization. You don’t receive employee benefits and you’re responsible for paying your own taxes. Lastly, your client cannot dictate your working hours as an independent contractor. 

Let's zoom in a little on the tax difference of an employee vs an independent contractor. As an independent contractor, if your contract is for $5,000, your check will say $5,000. Now, if you’re an employee and you work 50 hours for $100/hour, that totals $5,000 of work. However, your check will not be for $5,000. As an employee, your company can take out any necessary taxes, which may turn your $5,000 check into a $3,500 check depending on your tax situation. 

Hopefully that illustrates the point, but basically, as an independent contractor, you're responsible for paying your own federal and state taxes. So you need to be reserving a certain amount of money from the check that you receive from your client so you can pay your own taxes. You’ll also receive a 1099 form at the end of the year, as opposed to the W2 you receive as an employee. 

So those are some of the major differences between being an independent contractor and employee. But I share all that to say that anytime you're getting contracts in your business, you're being contracted as an independent contractor. You're not being contracted as an employee, they're not hiring you. So it’s good for you to have that knowledge and context of what it means to be an independent contractor  so that you know that your client can't say, “You have to be online from nine to 12 every day”, because you know that they can't dictate your hours. That doesn’t mean that they can’t set a deadline for when a project needs to be done, but that they cannot make your schedule. 

#2 - When You’re Hiring an Independent Contractor

I wanted to talk through this process as well, because once you start your education consulting business, as CEO you’re going to need to hire some help eventually. A great place to start is with a part-time employee or contractor so I want to give you the CEO side of this question as well. 

Now I know you may be thinking “Erica, I’ve only just got my first contract, there’s no way I’m hiring. I won’t be able to afford it!”, but this is vitally important. I have seen people stunt their growth and their business as entrepreneurs, by struggling (and sometimes refusing) to wrap their mind around hiring an employee, because they’re scared. 

I totally get it. The thought of hiring an employee used to be incredibly scary and overwhelming for me, but if you plan on having a multi six figure or seven figure business, you will have to hire an employee or employees. You can't do that with just a bunch of contractors because of all the differences between being an independent contractor vs being an employee. 

So that’s just a quick primer on the difference between being an independent contractor and an employee. As an independent contractor, you’ll definitely need to do your research and talk to tax professionals when it comes time to prepare your taxes, but I wanted to share this as a starting point. 

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