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Difference Between Independent Contractor and Self-Employed

Difference Between Independent Contractor and Self-Employed

Are you looking to start your own business? Being an independent contractor and being self-employed might sound like very similar employment options. The two share many similarities, and there are also a few differences that are important to keep in mind. The route you choose depends on specific factors regarding how you do your work and why, and both types of work are successful avenues for highly skilled people.

Learning more about each type of employment can help you decide whether self-employment or becoming an independent contractor is best for you.

Definition of Self-Employed

The IRS categorizes self-employed individuals as people who:

  • Run a trade or business as a sole proprietor or independent contractor
  • Are part of a partnership that runs a trade or business
  • Run any other type of business, including part-time businesses

Sole proprietorships are businesses owned and run by one individual. Partnerships are arrangements between two or more people to run a business jointly.

When people are employees of a company, they serve that company's clients and earn their living through a consistent wage or salary paid by that company. Self-employed people don't work for a company or any other person and instead earn money by working directly with other trades or businesses.

Definition of Independent Contractor

The IRS defines independent contractors as people clients hire to perform a service and pay based on the work they do. They're hired for the jobs they do on a project-by-project basis and paid for their time.

When another business contracts these individuals to perform a service for them, independent contractors are different from employees in that their only obligation to that business is to deliver a finished product or service. The business's one obligation to the contractor is to pay them for the time spent to provide that product or service.

Independent contractors can complete their services however they choose. Whoever pays the contractor, whether a company or a client, doesn't choose how the contractor gets paid or who provides their tools and supplies. Contractors often have a large degree of freedom when it comes to how to do their jobs and how they would like clients to compensate them for their services.

Independent contractors can fall under any category of work, such as doctors, accountants, or lawyers.

Self-Employed vs. Independent Contractor

Your specific employment status determines your rights and freedoms as a worker. Defining which category your business falls under is important for tax purposes and for making sure you get the most out of your experience.


Self-employed is an umbrella term that includes many specific employment statuses. While being an independent contractor is one way to be self-employed, not all self-employed people are independent contractors. A self-employed person might create products or services and sell them with no particular clients in mind. Meanwhile, an independent contractor works on contract, performing their jobs for a client when that client hires them to do so.


Individuals who own a business that provides a service to another business are self-employed. Self-employment includes people who independently seek contracted positions to offer their services to other businesses.

Both self-employed people and independent contractors are usually highly skilled in one specific area or trade. These skills can be anything from writing and creating art to performing home repairs or practicing finance.

Both self-employed people and independent contractors are usually highly skilled in one specific area or trade.

Being an independent contractor or self-employed comes with similar potential drawbacks. You'll need to be dedicated, seeking opportunities to ensure you have enough work to maintain your business and personal expenses.

Benefits of Being Self-Employed

Self-employed people often enjoy a great deal of freedom and agency in how and when they choose to conduct business. If you think your skills and work ethic would lend well to an independent work style, here are some pros of self-employment:

  • You can set your working hours: Create a schedule that works best for your creative rhythms or is compatible with your personal life. You also have more freedom to take time off when you want or need to.
  • You can work from home: This has many benefits, including eliminating a commute from your workday, working from a place where you feel comfortable, and focusing on your own work and success outside of other people's opinions or expectations. Whether you work from home or not depends on the type of work you do.
  • You're the boss: You can make all business decisions on your own, change plans as you see fit, and ultimately drive the creativity of your business. You also make all the hiring decisions, so you have more control over who you work with.
  • You reap the financial benefits of your business: You get a front-row seat to your business's success and earn all your business's money directly.

If you're the type of person who likes every day to be new and exciting, self-employment is an opportunity for your schedule, goals, and day-to-day responsibilities to frequently change to meet your passions.

Benefits of Being an Independent Contractor

If employment on an individual project basis sounds compatible with your line of work, here are some pros of being an independent contractor, some of which overlap with being self-employed:

  • Schedule freedom: You're often able to work on your own schedule.
  • Job security and control: You're your own boss, meaning you can more predictably control your work and often feel a strong sense of job security.
  • Working from home: You may be able to work from home, giving you the leeway to work around other obligations or spend more time with loved ones.
  • Hourly pay: Clients pay you at an hourly rate, which, depending on your industry and skill set, you may be able to capitalize on. When a 9-to-5 schedule isn't limiting your workday, you have the potential to work more hours in a week to provide in-demand services.
  • Different experiences: You may work with a variety of different companies over the course of your career, giving you a unique chance to gain a wide variety of experiences.

If you're wondering whether a job or industry is right for you, take on short-term contract projects. That experience can be the perfect way to put your name and work out there and help you decide if you want to pursue that work full time.

Become a BCA Member and Boost Your Business!

Become a BCA Member and Boost Your Business!

Let Business Consumer Alliance help turn your passions into a steady career. Whether you're looking to be self-employed or interested in beginning an independent contractor role, you have many exciting career options available to you. If you're starting out as a contractor, our contractor network will help you promote your business and reach clients right where they're already looking.

When customers come to us looking for reliable businesses, we always recommend our members! As a member, we'll help connect you with clients, resolve disputes, collect unpaid invoices and advise you on best business practices. Start your business off on the right track by becoming a member today!