Lesson 1: What Is Self-Employment?
What Is Self-Employment?
For people over 50, being self-employed can be a great way to continue earning an income, explore a passion, or give back to your community. It can also help you switch career gears and try something new. There are so many possibilities.
The first step is understanding what exactly self-employment is. Simply put, self-employment means you work for yourself instead of someone else. In general, there are four different types of self-employment.
Forms of Self-Employment
- Side Hustle: Run a Part-Time Business on the Side. Keeping your day job but starting a second income stream from a business you own.
- Freelancer or Independent Contractor. Doing the same work you’ve been doing — or completely new work — for companies that are your clients instead of your employer.
- Micro Business Owner. Offering a product or service to the general public through a business you run yourself. Having fewer than 10 employees is what makes it a micro business.
- Start Nonprofit Organization or Social Enterprise. Owning a business devoted to doing good in the community. Nonprofits rely on public funding through donations, while social enterprises generate their own profit to keep themselves running.
What’s the difference between employees and contractors?
Often, independent contractors and freelancers work for the same company as employees, even doing the same or similar work.
But there are very important legal differences between being an employee and working for a company as a contractor or freelancer. Your employment status affects your health benefits, taxes, and liability. If you are accepting a job offer to be an independent contractor or working for clients on a freelance basis, you should understand the following key differences.
| An employee… | An independent contractor or freelancer… |
|---|---|
| Usually works for only one employer. | Usually provides consulting services to more than one company. |
| Works the hours set by the employer. | Sets their own working hours. |
| Usually works at the employer’s place of business but may work remotely. | Works out of their own office or home. |
| Often receives employment benefits, such as health, dental, and disability insurance. | Does not receive employment benefits from the employer. |
| Has income tax withheld from their paycheck. | Pays their own quarterly estimated income taxes. |
What should I consider before exploring self-employment opportunities?
In addition to the timing of becoming self-employed, it’s a good idea to consider the the following factors:
- Your current employment status, especially if you’re looking to add a side gig
- Your current financial situation
- Whether you have the disposition to be self-employed
- What you expect to happen personally and financially in the next few years
- Your immediate and long-term obligations to family, community, and work