Most of us understand what it feels like to work for an employer, but the term “self-employed” has often caused confusion. Self-employment is a form of economic activity in which a person or entity works for him or herself, instead of working directly for an employer.
Types of Self-Employment
Individuals can become self-employed in a variety of ways. Freelancers and independent contractors, for instance, typically provide service or labor to clients, customers, or companies on an as-needed basis. Both work on their own terms and generally set their own hours and rates. Similarly, entrepreneurs and small-business owners might be engaged in a trade or business as sole proprietors. Those who incorporate may be categorized as self-employed, as well.
The Benefits and Drawbacks
Successful self-employment can offer many advantages. Those who derive income from self-employment typically have more flexibility in terms of how and where they work, allowing them to operate on their own schedule. Self-employed individuals may also have a greater degree of autonomy and financial freedom, leading to increased job satisfaction. On the downside, self-employed workers may be faced with uncertain income, lack of job security, and more administrative work.
Tax and Legal Considerations
In the eyes of the law, those who are self-employed are essentially running their own businesses, and as such, are legally and financially responsible for their own operations. This means that self-employed individuals must take responsibility for properly filing and paying their federal, state, and local taxes on time. Additionally, those who are self-employed may benefit from consulting with an attorney to help navigate the legal matters of starting and running a business.
What Self-Employed Really Means
At the end of the day, self-employment is an increasingly popular option for many professionals. It allows greater freedom and control over one’s work and the possibility for greater long-term financial rewards. However, the added financial and legal responsibility also means that those who are self-employed must take extra care to stay in line with applicable regulations and laws.