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How to become an independent contractor

independent contractor

Learn about independent contractors, what they are, and how to become one. 

There’s a difference between working at a job where you’re an employee or working for yourself. If you want to work for yourself instead of someone else, you’ll likely be an independent contractor instead of an employee. 

Becoming an independent contractor isn’t as intimidating as it sounds. In fact, plenty of workers are employees on a full-time basis while being independent contractors on the side, spending evenings and weekends working for themselves. These people may offer their professional services on the side or may offer completely different services as their side gig. 

Other people are independent contractors as their full-time job. Positions like hair stylists, plumbers, electricians, marketers, drivers, writers, and more are often independent contractors.  

If you’re considering going into business for yourself, keep reading to learn the difference between an employee and an independent contractor and the steps you need to take before going into business for yourself. 

What is an independent contractor? 

One of the main differences between an independent contractor and an employee is how taxes are handled. As a W-2 employee, your employer likely withholds taxes, Social Security, and Medicare from your paycheck. As an independent contractor, you’re responsible for paying your own taxes. The IRS is a great resource to learn more about the differences between employees and independent contractors.  

An independent contractor controls their own schedule. While the person who hired them may tell them what they need done and provide a deadline, it’s up to the contractor to set their hours and accomplish the work. Independent contractors also often pay for their own tools (think of hair styling tools, plumbing tools, using their personal vehicle, laptops, etc.). They also don’t receive benefits such as a 401(k) or vacation pay. When in doubt, the IRS has provided more information, including some examples, in Publication 15-A

It’s important to know the difference for several reasons. First, as an independent contractor, you have more responsibility for filing taxes than as an employee. Second, you’ll need to keep good records to maximize tax deductions. Third, as an independent contractor, you’ll likely need to cover benefits that employers often cover, such as health insurance, saving for retirement, and planning for sick and vacation days. 

How to become an independent contractor 

There are a few steps you should consider before you become an independent contractor, but these steps depend on what type of work you’ll be doing. 

First, you may want to pick a name. Many independent contractors just use their own legal name. If you want to use a company name, this may require registration with your state secretary of state’s office. 

Next, review any appropriate licenses that you may need. While some types of independent work don’t require a license, others (think of electricians, plumbers, etc.) do. Make sure you have a license if you need one! 

Finally, you should begin tracking your finances the moment you either spend money on your business or earn money from your first job. You’ll need to pay taxes on your earnings, and you can reduce your tax liability by making sure you track your business spending, too. You can use indi’s tools to capture receipts, set a tax savings goal, and track your income and expenses. With these tools, tracking your finances may be the easiest part of becoming an independent contractor! 

Benefits to being self-employed 

There are plenty of reasons more people are deciding to become self-employed. Some of the reasons are obvious, but there are even more you may not have considered yet! 

Setting your own schedule is one of the major perks of being self-employed. You can work when it works best for you or your family, instead of having your hours set by someone else. You can schedule your vacations whenever it works best for you, and you don’t have to ask permission or coordinate with fellow employees to get time off. 

Being an independent contractor also means setting your own rates. Instead of waiting for someone higher up to notice your hard work and give you a raise, you can decide you deserve a pay raise at any time. 

You also have the benefit of deciding what jobs to work, and which ones you’d rather avoid, since you’re in control of the work you do. 

Self-employed people often also enjoy a better sense of work-life balance, since they have more control over their work, their schedule, and their work environment. 

Things to consider before you quit your job 

Even though being a self-employed independent contractor is great, there are a lot of things to think about before you quit your job

You’ll need to make a budget and find out if you can make enough money to cover all your bills. But don’t forget that as an independent contractor, your tax situation will be different than what you have experienced before. The main reason is that you’ll have to pay “self-employment tax” for Medicare and Social Security, in addition to your normal federal, state, and local income taxes. So don’t forget to include taxes when you’re making your budget! indi can help you budget for taxes, so you’ll be ready when taxes are due. 

You may also need to figure out how you’ll save for retirement, get health insurance, and take vacation days, since you won’t have an employer to cover those anymore if you’re a full-time independent contractor. This may mean you need to increase your rates, earmark more money for savings, or contact a financial advisor to help you set up a retirement account. 

It’s always a good idea to have an emergency fund saved up before you quit your job, too, to help make ends meet as you get your new business off the ground. Keep in mind that as an independent contractor, your earnings may fluctuate each month, so your emergency fund will come in handy there as well. 


Being your own boss is rewarding for a lot of reasons, like being able to set your own schedule and choosing what type of work to do. But it’s a big leap financially to shift from being an employee with a guaranteed salary to becoming an independent contractor. You’ll be responsible for tracking your tax liability, monitoring finances, and making sure you can cover your expenses, besides hunting down work to do! 

No matter what type of self-employed work you do, managing your finances is easier with indi’s tools. Besides budgeting for taxes, you can track your income and expenses to make tax time easier. indi can help you manage your finances like a pro, no matter what type of independent contractor you are.