Working as an independent contractor can be appealing and advantageous. You often get to set your hours and have full autonomy over how you complete your work.
Unfortunately, independent contractors also face several unique challenges that traditionally-employed workers do not. This makes independent contracting a poor fit for many people as it requires careful planning, management, and execution.
To put things into perspective, a third of workers in the US are classified as contractors. Most of the US workforce earns a steady paycheck, but a significant percentage of the population has it harder.
While there are both benefits and disadvantages to being an independent contractor, you generally have greater potential and more control over your career.
To help you understand if this working style is right for you, we’ll point out the difficulties that independent contractors deal with below.
First, independent contracting often involves unreliable earnings.
One of the main perks of having an employer is a guaranteed paycheck. Whether you’re paid hourly or on salary, you always have a rough idea of how much you’ll receive each week.
Independent contracting does not share this luxury. As an independent contractor, you are a freelancer that must source your clients and revenue streams.
This is often the biggest adjustment when first starting as an independent contractor because you never had to think about this when working an employed job. That said, it is one of the most important skills to develop because your ability to find new clients dictates how much you earn.
With this in mind, clients are often unreliable themselves and this makes your monthly income uncertain. You may have steady clients accounting for most of your income one month that disappear the next.
The bottom line is that you never know what to expect. Keep this in mind and never take your situation for granted. Always be ready to adapt and adjust as needed to keep yourself afloat.
Unreliable earnings are particularly problematic because you’ll also be fronting expenses.
This is arguably the greatest barrier for entry to independent contractorship. You may have all the skills necessary to complete a job yourself, but having the proper tools and capacity to do so is another story.
For example, you might know how to make the best cup of coffee around. However, that doesn’t mean that you have the resources to open a storefront and staff, supply, and market it.
The important resource here is money. Just about anything you’ll need will come with a cost. If an expensive piece of equipment is a necessity for your work, then you will have to pay for it.
A silver lining to this is that you can deduct the cost of business-related expenses on your taxes. This does make the cost a little less impactful, but you’re still feeling most of the price you pay upfront.
Lack of Insurance Coverage
Should anything go wrong on the job, independent contractors are not insured and this creates more uncertainty.
This is relevant in two different ways.
First, you’ll lack workers’ compensation coverage should you get injured while working. For something like delivering newspapers, you won’t be able to file a claim for an injury sustained while working your route.
However, you should know that you often can file a lawsuit against the person you’re contracted with to recover losses if your injury is a result of their negligence.
The other portion of this is that you have no insurance benefits that usually come with an employer. This means no free trips to the doctor, which can cause you to neglect health concerns and impact your overall wellbeing.
Having insurance provides a major sense of relief and this is something you won’t have as an independent contractor unless you buy it yourself.
Another financial burden is the tax complications that come along with being an independent contractor.
Specifically, you’ll be responsible for your entire tax burden. In some situations, this is why you may be designated as an independent contractor so that your partner has a lighter financial burden.
While this is nice for them, the burden doesn’t disappear and it’s placed on you instead. Making matters worse, you don’t have a regular paycheck with deductions taken out for taxes.
Working a normal job means that you slowly pay your taxes as they’re accrued. At the end of the year, you’ll often have just a small amount left to pay or you’ll receive a return if you’ve paid too much.
As an independent contractor, your tax burden builds but isn’t paid unless you actively do so. You should be paying taxes quarterly and even this can be enough time to amass a significant tax bill.
Putting this all together, independent contractors simply pay more in taxes and it’s easy to neglect them because they require regular attention.
Classification Is Difficult
Finally, you should understand that the classification of independent contractors is confusing and difficult.
We mentioned above that some situations involve working in a designated independent contractor role. Some businesses may deliberately seek out independent contractors to benefit from a lower responsibility and cost.
This gets complicated when the business also employs workers that do a similar job. In the newspaper delivery example from earlier, the company you work with may also have delivery drivers on salary in addition to independent contractors.
The reason why the classification of independent contractorship is so significant is because of the tax implication differences. Failing to comply with government requirements will mean a hefty fine for the party you’re contracted with.
The way that independent contractorship is determined is through evaluating how much control you have over your work, whether you’re responsible for the cost of supplies, and how you’re paid.
There isn’t a perfect formula for this, which creates a grey area that some businesses operate in. Understand this well and don’t sign anything that isn’t also designed to protect yourself, too.
Being an independent contractor is extremely freeing and the opportunities are endless. At the same time, it certainly isn’t for everyone and requires persistence and hard work to succeed.
The main reason for this is because you’ll face several difficult challenges as an independent contractor. This includes unreliable earnings, the need to front expenses, a lack of insurance coverage, tax complications, and confusing classifications.
As difficult as independent contractorship is, it’s exceptionally rewarding if you can make it work. Consider if the hurdles above are something you can persevere through. If they are, then you may be well-suited as an independent contractor!