Working as an independent contractor is a great way to earn a living or to make extra income. Many people choose independent contracting as their full career. As an independent contractor, you have the autonomy to set your own ways of working. You can work as an independent contractor without work authorization or a Social Security Number (SSN), no matter your immigration status.
It is important to understand that there are different ways for you to earn a living, and independent contracting is one of those. As an independent contractor, you own your own business and work for yourself.
What is an Independent Contractor?
Being an independent contractor means you are self-employed and you produce a specific type of work in a set amount of time. Some independent contract work is considered a “gig,” such as performing music at events or driving for a ride-share service, and other times it’s considered a professional service such as creating fine art or being a landscaper.
The most important thing is to have a vision about how this work is going to not only bring in income, but also how it might be gratifying and sustainable. In the US, independent contracting work is often called “the gig economy”.
The Gig Economy
This term refers to a growing segment of the labor market, in which clients contract with workers, often via apps, for specific tasks and activities. The gig economy has endless options and often does not require educational prerequisites.
Gig opportunities include:
- Driving a car for ride-share services such Uber or Lyft
- Selling products or services on sites such as Etsy or eBay
- Performing music at paid gigs and concerts
- Working for freelance labor apps such as TaskRabbit
- Renting space in your personal home with sites such as AirBnb
- Any one-time, task-based job
Professional services exist in a variety of industries. In addition to participating in The Gig Economy, you individuals may choose to leverage your expertise, skills, abilities, certifications, and professional and academic training to offer professional services to the public. The ability to provide these services requires experience, passion for a specific type of work, and in some instances, licensing or educational attainment.
There are many different types of independent contract work you can do, allowing you to leverage all the skills, experience and knowledge that you have accumulated over time both inside and outside of formal schooling. You can start in the gig economy and work toward offering specialized professional services.
Some examples of professional services may include:
- Computer Programming
- Dog Walking
- Fine art
- Graphic Design
- Payroll Management
- Real estate
- Website Design
- Writing and editing
See examples of people who have become independent contractors on the Inspiration page of our website.
California Independent Contractor Laws
California courts and administrative agencies have generally applied common law principles to determine independent contractor status. Recently, however, there have been major developments in independent contractor law.
Beginning January 1, 2020, a new law, commonly referred to as Assembly Bill 5 (AB 5), significantly altered the way California law distinguishes between employees and independent contractors. California’s new AB5 applies to all of California, but exempts many professional workers and many other workers with licenses, such as stylists and barbers. Click here to learn more.
Before engaging in independent contracting, we suggest carefully thinking about the type of services one could provide that meet the requirements. See Appendix A for a list of top consulting opportunities that can be done independently.
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Key Questions Before You Start
Take a few moments to think about your answers to the following questions. Having a vision in mind for how you might participate in the gig economy or by offering professional services will help you focus your goals, your time, and your energy.
What kind of skills could you offer to clients?
Be honest about what work you are particularly good at. Having an understanding about your skills and which of them excite you the most gives you a good sense of which direction you might take as an independent contractor.
What is your passion?
Why are you interested in this particular work? Perhaps you want to get a reward for a skill you perfected, or maybe you simply love music, accounting, or teaching a high-intensity fitness class. Maybe you have a skill you learned a long time ago that you can use to make extra money. Or, maybe people are looking for a talent just like yours. Whatever it is, your reason for becoming an independent contractor should be something that excites, motivates, and rewards you personally and financially.
What is your market?
- Who would pay you for your services, and how much are they willing to pay?
- Who will you interact with on a regular basis?
- Who do you see as your customers?
- What do you know about them?
- Do you know how much they are willing to spend on the product you’ll make or the service you’ll provide?
- How might you go about contacting them?
Payment & Planning
What kind of payment terms would you prefer: immediately, or longer term?
While it’s always nice to get paid up-front or at the completion of a project, it’s a good idea to have a sense about how you’ll get paid. You can negotiate a down payment, installments, balance due at completion, and a processing period in case invoices need to run through their accounting department. The length of time of the payment terms are often defined by the amount of days in between invoicing and payment. You will often see this stated as NET 30 for 30 days, NET 15 for 15 days, etc.
How many hours a week do you expect to work for this gig or professional service?
How many hours you work as an independent contractor depends on many factors such as your availability, customer needs, or how long the project will take. It’s a good idea to have a sense of how you’ll invest your time, and how much of it you’ll give to work and how much to your personal life.
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The Immigration Reform and Control Act of 1986 (IRCA)
This law states that it is illegal to knowingly employ unauthorized workers in the United States.
IRCA requires employers to verify that everyone is legally authorized to work in the US using the I-9 System. An exception to this rule, however, is that an individual or entity is not required to obtain Form I-9 from independent contractors or sporadic domestic workers. This is important because individuals who fail to comply with Form I-9, or who knowingly hire or contract undocumented individuals, may face civil fines, criminal penalties, or debarment from government contracts. The form verifies that clients are knowingly hiring an individual with work authorization.
Basic Guidelines for Independent Contractors
An individual is an independent contractor if the payer or client has the right to control or direct only the result of the work and not how it will be done. The earnings of an independent contractor are subject to self-employment tax.
The Internal Revenue Service Common Law Rule (IRS: a governmental agency) determines the factors about who is an independent contractor or an employee. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done).
Here are examples of employees vs. contractors:
- Where you work: independent contractors typically invest in and maintain their own work facilities. In contrast, most employees rely on their employer to provide work facilities.
- Method of payment: hourly, weekly, or monthly pay schedules are characteristic of employment relationships, unless the payments simply are a convenient way of distributing a lump-sum fee. Payment on commission or project completion is more characteristic of independent contractor relationships.
Wage and hour laws, workplace safety laws, and retaliation laws protect employees but not independent contractors. In California, willful misclassification of workers can result in civil penalties, between $5,000 and $25,000 per violation.
More information about these guidelines can be found in the IRS Employer’s Supplemental Tax Guide (Publication 15-A).
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Tips to Start Earning
Here are some helpful tips to help you get started as an independent contractor:
- Make sure that the work you want to do follows the independent contractor IRS and state guidelines.
- Know the legal aspects of working as a contractor.
- When talking with prospective clients, highlight your assets and skills, and demonstrate how those meet their needs.
- Research similar types of work you do so you know the standard rate for your services.
- Get familiar with writing contracts and make sure you sign a contract with every client.
- Promote yourself via social media platforms.
- Get active in your local business community to meet prospective clients.
- Make new connections with people who may provide opportunities for you, otherwise known as networking.
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Talking to Potential Clients
Here are some tips and advice about how to talk with potential clients (or prospects) about independent contracting.
- Set up a time to meet with new contacts, and offer to pay for lunch or coffee.
- Be prepared to talk about legal aspects of independent contracting as this offers some protection for both you and your prospective client.
- Talk about how your previous work and education experience matches up with what they are looking for.
- Talk about how your services match up to what they are looking for.
- Talk about what makes you different from your prospect’s other options.
- Know your competitive rates for the services you provide.
- Ask a lot of questions and listen to their answers to the following questions:
- What are their biggest and most immediate needs?
- What has been their experience in working with consultants and contractors for this line of work?
- What are their expectations in terms of the work product, time, budget, etc.?
- List out the next steps you both will take before you close your conversation.
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Contracts are important as they protect both you and the person or business that has hired you. A contract is helpful because it defines the type of work you will provide and sets expectations. It also provides documented evidence of the arrangement that you will be working as an independent contractor and not as an employee (which has different tax implications).
A contract allows both you and the hirer, or client, to think through key aspects of the working relationship, and makes clear additional provisions of the working relationship, such as keeping parts of the work confidential, making clear who owns the work product, how the contractor can talk about the project in their marketing, and many more arrangements.
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What Forms You’ll Need
INDEPENDENT CONTRACTOR IRS FORMS
Here are three IRS forms you should be familiar with as an independent contractor.
W-7: Individual Taxpayer ID Number (ITIN) Form W-7. Only complete this form to apply for, or to renew an existing, IRS individual taxpayer ID Number. Access the form on this page. If you already have a social security number or qualify for one, you don’t have to apply for an ITIN.
W-9: Request for Taxpayers Identification Number and Certification Form W-9. This is the form independent contractors submit to the person or companies who have hired them. At the end of the year, they will file this information with the IRS, and include information about how much you were paid. Access the form from this link.
1099: Miscellaneous Income and Form 1099. You will receive this at the end of the year and it records how much this individual paid you. You should receive a 1099 for every W-9 you submitted. Use your 1099s to prepare your federal and state income taxes.
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Below you’ll find some handy resources for getting started as an Independent Contractor.
Marketing and Promotions
Now that you have an idea of the type of work you would like to do as an independent contractor, you will need to start thinking about marketing your services.
Below are a few ways to promote and market yourself:
Create business cards and add a QR code to link to your website or LinkedIn profile.
- Purchase inexpensive business cards: www.vistaprint.com
- Create your free website: www.wix.com
- Create free QR codes: www.qr-code-generator.com
Consider creating a flyer/brochure to promote your services.
- Use free Microsoft Office templates: templates.office.com/en-us/brochures
Post an ad on social media promoting your services.
- Learn about FB ads: www.facebook.com/business/ads
You can find more information about Marketing and Promotions here.
Governmental Resources from the Internal Revenue Service (IRS)
Working for Yourself Resources
- Immigrants Rising’s Introduction to Working for Yourself Guide
- Immigrants Rising’s Guide to Professional Licensing
- Small Business Administration (SBA) Tips for Self-Employed & Independent Contractors
- Independent Consultant Network
- Freelancers Union
- Sample: Independent Contractor Agreement (California)