The U.S. economy is quickly changing. Rather than the traditional careers where you work for the same company for years, maybe change once or twice in your lifetime, more and more people are choosing to work shorter individual jobs and move on.
Welcome to the Gig Economy.
If you are part of this — whether as a freelance writer, Uber driver, or a consultant — there is important information that you need to know.
You Are an Independent Contractor
Traditional careers involve a contract between an employer and an employee. When you are hired, you are entered into the payroll of the company and you receive a W-2 form at the end of each year to complete your IRS tax forms.
In the Gig Economy, this works a little different. While you are still technically an employee, you are do not receive a W-2 form. Rather, you must fill out a 1099 form, also known as an “independent contractor” form or “self-employment” form. Under this form, you will report all of the income you’ve made from various jobs and you will need to pay taxes based on that figure.
Know Your Rights
As a freelancer, you lose certain protections that a traditional employer is able to provide. Perhaps most importantly, you are now fully responsible for any health care insurance you have. This can sometimes be higher than traditional employer-backed health coverage, so make sure to do your research before striking out on your own.
You also lose other workplace rights, such as protection from discrimination, unemployment benefits and worker’s compensation.
This isn’t to say that you have no rights. You still maintain rights as a citizen. Acts of discrimination or failure of a client to pay you are still illegal, it’s just that you are solely responsible for resolving any issues. So if you drive part time for a company and get into a car accident, find representation immediately, like from Scott C. Gottlieb, to head off any issues that may arise.
How to Protect Yourself
Aside from contacting a lawyer for major incidents, the most important thing an independent contractor can do is to pay attention to their tax situation.
Oftentimes, independent contractors work throughout the year and then, when tax time comes, face a large bill that they weren’t prepared for. This is because they do not put enough money aside from each payment to cover the costs.
Since you are not a W-2 employee, all of the tax burden falls on you. You are responsible for Federal, State, Medicare and Social Security taxes. In the past, all of this was taken out of your paycheck by your employer before you received it. Now, this means that you should set aside close to 30% of your income for the inevitable tax bill once you fill out your 1099.
The economy is changing and becoming more friendly to independent contractors taking gigs, but you must know your rights and responsibilities to protect yourself and be successful.
Leon Whitehouse has never looked back since he started freelancing several years ago. He writes on the topic to help fellow freelancers get informed and get themselves more work, and better work.