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Dear Electra,

I enjoy your page on the Internet. I have been looking for jobs in my field and am seeing more and more opportunities that are described as "independent contractors" rather than employees. I am intrigued--and a little scared--by the idea of NOT being an employee.

What should I know about this? What are the pros and cons of being a contractor as opposed to an employee? Is there information on the Web that might help me sort this out?

Contractor or employee?

The pros and cons?


You'll be working for yourself.


You'll be working for yourself.

Ok, that's less than you wanted to know. But it IS the bottom line. As an independent contractor you will own your own business and enjoy all the risks and rewards of being in business for yourself. You'll supply all your own equipment, keep your own books, get clients, advertise, pay taxes and Social Security, arrange for your own insurance coverage (health and all else) and much, much more.

Because there are so many factors and responsibilities involved, becoming an independent contractor requires planning and preparation on your part. You are starting a business and you need to have a plan!

Your new clients (whom you formerly called "employers") will need to determine that you truly ARE in business before they can contract with you.

There are several sites on the web that outline the issues involved. The most useful are the checklists of criteria the I.R.S. uses to determine if your relationship with the client is that of contractor or employee.

Independent Contractors FAQ
This is Electra's favorite site! From Nolo Press (the publisher of legal guides for non-attorneys), an outline of issues, forms, and a FAQ (Frequently Asked Questions) section for both Hiring Firms and Contractors. This site also lists other resources you will need to set up your new business.

How Much Should You Charge for Your Service?
From Nolo News: how to calculate your hourly fee as an independent contractor.

CCH Business Owners Toolkit - Independent Contractors
A guide - from the employer's perspective - outlining the pros and cons of using contractors. Includes a sample contractor agreement.

IRS Publications
You'll need some extra software (like Adobe Acrobat) to read these publications online--or you can call or pick up the publication you need from the nearest I.R.S. office. Publication 334--Tax Guide for Small Business is essential reading.

A great print resource is Independent Contractors: A Manager's Guide and Audit Reference from the California Chamber of Commerce. You can search your public library's catalog to see if they own this title.

To learn more about some of the challenges (and rewards) of becoming an independent contractor, spend some time looking at the articles here:

To get started starting your own business, visit the Small Business Administration's website for a wide range of starting points including a "Frequently Asked Questions about Starting a Small Business."


Page last updated: 11:06 PM on 5/22/09