I thought I’d share the key takeaways from our conversation so that you can educate yourself and feel better prepared.
What is an independent contractor?
LegalZoom provides a great answer. “An independent contractor is a freelancer or self-employed person who provides a service and is hired by a company or individual to perform a specific task.”
So, you do not work for someone anymore. You are contracted by them for your services. This is very different from an employee relationship. You are the one who decides on your rates, terms of services and the way that you handle things in your business.
There are also legal implications that you need to keep in mind when becoming an independent contractor. For example, you are now responsible for paying self-employment taxes. Don’t let this scare you away. You just need to learn what you don’t know right now. If you currently file your own taxes or work with an accountant, you’re basically going to track income and expenses, file an extra schedule come tax time and put aside a percentage of your earnings to go towards your self-employment taxes.
Here is another big question when it comes to being an independent contractor:
Am I eligible for unemployment if I need it?
The answer, in most cases, is no. Being self-employed, there is no employer to pay into your unemployment benefits. Keep this in mind when thinking about your financial situation and your current employment situation.
For example, you may currently be working somewhere as a full-time employee. This means that you’ve been paying into unemployment benefits. Now you’d like to quit your job and become a virtual assistant. Let’s say that some issues come up two years later and you run into financial hardship. You have to close your virtual assistant business and really need financial assistance. You would not be eligible for unemployment benefits at this point.
It’s important that you have this information and understand how all of this will work for you in your new business venture. The IRS is certainly not going to accept an answer of, “I didn’t know how this worked,” if an issue arises. Knowledge is power! So, learn what you need to know and take care of it right from the get-go.
Please note: This information is in no way intended to be legal advice. Please consult a professional when making your decisions and find out the facts for your particular situation as well as the state where you live.
–>You can learn more about the legal differences of an employee and an independent contractor, as well as more about self-employment tax, here on the IRS website.
–>To find out more about how unemployment insurance works, read about it here on the US Department of Labor’s website.
–>Another great resource for information on self-employment and being an independent contractor can be found on the SBA.gov website.
–>You can learn about other options for self-employment assistance here.
–>If you’d like to learn more about the mental aspect of making the shift from an employee to an independent contractor, sign up for my free ecourse here.