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Independent Contractor
vs Employee

Exploring the differences between : Independent Contractor vs Employee, when it comes to pay and health benefits.

You may be interested n working from home and have been hearing that some positions are offered as independent contractor positions , while others are being offered as employee positions and you may be wondering what the difference is.  So, let's explore that  alittle and see the pros and cons of each.

Independent contractor vs Employee:

Working as an Employee

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Being an employee, you can expect that:

1.  Your state and federal taxes will be automatically withdrawn for you from your paychecks.

This may be the biggest difference .

If you are not the type who can be diligent about socking away up to 20% of your paycheck in a savings account for taxes then you may want to think twice about working as an independent contractor.

But working as an employee has the added benefit of not really having to worry about setting aside part of your paycheck for taxes. 

As long as you have it all set up to withdraw the appropriate amount for  on your W2, you can pretty much not have to worry about your state and federal taxes being withdrawn correctly.

2.   You may have a set hourly wage

Although this isn't always the case, working as an employee of the company usually means that you are set up with a regular hourly wage.

So, while you may not have the chance to get paid a higher amount if the call volume is especially heavy during your shift, you will also not go as low as minimum wage if the call volume happens to be on the lighter side. 

You have a steady, set wage per hour that you can depend on (regardless of the call volume).

3.  Being an employee of the company, you may also be offered medical and dental benefits and inclusion in a 401 k plan.

Typically, companies wait a certain amount of time before they offer you these benefits, whether it be 3-6 months to a year.  However, as an Independent contractor, you will most likely not be offered any sort of health or retirement benefits.  So if having health benefits is important to you, keep in mind that this is typically something you will get only if you are hired on as an employee.

 

Independent contractor vs Employee:

Working as an Independent Contractor

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As an independent contractor:

1.  You are responsible for setting aside your own state (if applicable) and federal income tax from your paycheck.

If you are confused about the tax laws in your state and whether you should file your taxes as a sole propietor or as a corporation, I would suggest picking up this book: "Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants" to give you the information you need.

2.  Many times you are not offered a set hourly wage.

Why?

Because, in my experience as an independent contractor you are not offered a set hourly wage but may instead may be

paid by the minute

or

by the call

and

Your pay rate may depend on how heavy or light the call volume is on any particular day.

However, even being paid by the minute or by the call, you will usually at least get a guaranteed rate of minimum wage if the call volume happens to be light.

When applying to some of these companies, make sure to ask if they pay you a "guaranteed rate per hour".

Many people actually consider this to be one of the benefits of being an independent contractor vs employee.

This is because instead of being locked into say, $8.50 an hour,

(without the opportunity to make more per hour)

you may instead get paid a rate of .34 cents a minute, which means that if you get a full hour of talk time,

( if you are on the phone for a full 60 minutes)

you will be making over $20.00 an hour.

3.  When working as an independent contractor vs employee, you may or may not be offered participation in a company medical or dental plan.

You can check with the company recruiter to find out more information but in my experience, if you are hired on as an independent contractor, you can expect that you will not be offered any kind of health benefits.

Independent contractor vs Employee:

Tax Benefits

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Obviously, you will want to find a good accountant to help you keep track of everything for tax time.  But one of the benefits of working as an Independent contractor is that you can claim expenses that you would not be able to claim as an employee of a company.

Anything from mileage driven for your business, to a home office, to your cell phone bill, office supplies, computers, printers, phone headsets, business lunches.... anything that is purchased for your business can be deducted from your taxes.

I  use a taxbot app by Sandy Botkin to keep track off all of my expenses including mileage on my smartphone.  It's a pretty neat little app and prints out everything on a spreadsheet at the end of the year.  (I can even deduct the cost of the app, come tax time!)

Sandy Botkin has written a book on what expenses you can deduct as an Independent contractor.  I consider it a "must read" to literally saves you hundreds, if not thousands of dollars per year. 

He even shows you how you can deduct your family vacations and fun expenses , highly recommended reading:

Lower Your Taxes Big Time 2013-2014 5/E (Lower Your Taxes-Big Time)

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