Independent Contractor vs Self-Employed and Other Questions
Are you a contractor, self-employed, consultant, or employee? How can you tell all the differences, and does it even matter?
As a business owner, you must know how to categorize your business correctly – not just for legal purposes but also as a means for you to achieve the best insurance option possible.
This article will discuss the inherent differences between those two categories and how you can tell them apart.
Independent Contractor Vs. Self Employed
“Independent contractor” and” self-employed” sound synonymous at first glance. After all, aren’t contractors self-employed individuals?
If you answered yes, you would be right.
However, that’s not all there is to it. While independent contractors may be self-employed individuals, not all self-employed individuals are independent contractors.
In other words, independent contractors are a subcategory of being self-employed.
There are specific categories where contractors differ from general self-employed people, such as:
- Service delivery. Contractors deliver their service on a per-contract basis. They only begin their work when it is signed. The self-employed individual operates independently and does not need a contract.
- Duration. Contractors are usually hired to complete a project for a set duration, while self-employed individuals don’t have limitations.
Difference Between Employee And Independent Contractor
The difference between an employee and an independent contractor is more pronounced. However, it can still become complicated, especially when operating in large establishments.
Here are some aspects where the difference is more pronounced.
- Control. You generally don’t have a lot of control over how contractors achieve the final result. You can tell them precisely what you want, but it’s up to them how they can comply with your specifications.
On the other hand, you can tell an employee exactly how to do their job to reflect company standards.
- Relationship. Your contract is also a solid indicator of your relationship. If you are labeled as a contractor or employee on the contract that you signed, then that’s what you are.
However, failing that classification, the IRS will look at other aspects of the employer-employee relationship, such as benefits provided and employment duration.
- Economic realities. This factor examines the financial aspect of your relationship with your client. It evaluates the importance of the job performed, control over profitability, and skill level.
Generally, contractors do periphery work, with higher control over its profitability, at a higher skill level than regular employees.
Difference Between Consultants And Contractors
Consultants and contractors are two other professions that often get confused together. However, they still have marked differences that can help you figure out your relationship.
- Nature of services provided. Contractors do the necessary work within a predefined duration and work on a set budget. This is true whether your contractors are responsible for building a new office building or creating an advertisement campaign.
On the other hand, consultants do not do the work themselves. They suggest solutions and methods to solve a problem, improve business operations, or meet requirements.
- Level of expertise. Contractors have a particular skill set. They might have a broad range of skill levels and experience, but only in a specific job function.
On the other hand, consultants have to be aware of the big picture. They need to have deep expertise over a broader aspect of their industry because they have to provide advice from a more informed point of view.
- Method of billing. Contractors often bill hourly. Sometimes, they also bill the expenses they incurred before they begin the work.
Consultants typically put a price on their services based on the difficulty of the project and how long it will take them to deliver results.
Determining Your Business Status
Knowing the exact status of a business is necessary not just for regulatory compliance but also for proper insurance.
Your business is a product of countless hours of effort, and you don’t want it to be brought down by the simple mistake of insuring for the wrong type of business.
Now that you know what kind of business you have, a highly qualified insurance provider can help you determine the best form of insurance for your business.
At Magnum Insurance, we can help you find the best insurance policies tailor-fit for your business. Get a quote now!