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You Know You're Self-Employed If...

Updated on June 21, 2009

A Little Background

I've been self-employed as a computer consultant for almost 20 years. To me, self-employment means:

  • purchasing your own health insurance for you and your family,
  • being paid 100% on commission rather than an hourly wage or salary,
  • being the sole decision maker for the company,
  • setting your own hours,
  • having the majority material investment in the company, and
  • getting paid on 1099s rather than W2s

In this article I'll discuss what it means to be self-employed. Regardless of what your resume might say, these are my opinions based on my experience. Uncle Sam provided a little input along the way. If you have an opinion on the subject, I'd be happy to hear from you.

Buy your Own Health Insurance

Admittedly this is a gray area. Coverage may come from a spouse's job; that still counts.This is a sore point for most entrepreneurs because we just can't get a group rating and our insurance costs virtually drive us out of business. I see a 10%-30% increase each year. The thought of hiring an entry-level employee and providing them with coverage is daunting.

I assert that spending enough time at one employer/customer to be covered by their policy equates to not being self-employed. I have met many job-shoppers who move between assignments under the umbrella of a contract agency. The agency finds the work and places the contractor on-site. Many agencies also offer health insurance to their contractors. It's a nice way to earn a living, but it's not equivalent to paying your own way.

Refusing to carry insurance doesn't count.

Work 100% on commission

Drawing a salary implies the possibility of getting paid without working. Stay home sick; get paid anyway. That's not inherently a bad thing, but it' a level of support that a self-employed person doesn't have. Don't even get me started on vacation time. Certainly salaried employees work hard, but they always have the cocoon of the company to nestle in. On the other hand, the cocoon tends to unravel a bit these days.

The true risk-takers among us are on a 100% commission-based compensation structure. If you don't work, you don't get paid. The upside is that you get to keep everything that's left over at the end of the month. Conversely, you have to make up the difference in the event of a shortfall. I think the reason most of us aren't self-employed is because we don't want our boss asking for a little help with the electric bill.

Have the Last Word

You don't need the first word, but you'd better have the last word. Customers, family, vendors are happy to give you advice. If anyone else is deciding what jobs to bid on, what jobs to take, and what customers to fire, you're probably not self-employed.

Set Your Own Hours

If someone gives you a desk and a chair in their office, then tells you when to sit there, you're probably not self-employed. The IRS agrees with me on this point. A key checkpoint applied by the Feds relates to whether or not you're told to be somewhere at some time. Giving up the freedom to set your own hours is the first step toward becoming an employee. When you're self-employed, plans become your responsibility.

Have a Material Investment in the Company

Look around your office. If everything is in your name, you're probably self-employed. If  someone else bought all your stuff for you, well...

Get Paid on 1099s

The Federal Government asked me to toss this in. A prime indicator of self-employment, according to the IRS, is whether or not your employer/customer takes taxes out of your check. If you see those deductions every month, you can expect a W2 at the end of the year. Otherwise, look for a 1099 and be sure to file your quarterly withholding statements.

Interestingly enough, the online job sites like Monster, Dice, and CareerBuilder support searching by W2 vs 1099. The types of jobs are inherently different. Employers understand that some folks won't work on W2s.

Regarding federal taxes, Schedule C is the "Self-employed" form. If you're not fillig out a Schedule C, you might not be self-employed. There is a "Self-employed credit" for filing it, but also a few penalties, namely the responsibility to make up the 7+ per cent of the Social Security tax that your employer typically pays.

Let's Hear from You

In Cool Hand Luke, Strother Martin said the famous line "What we have here is failure to communicate." Hopefully I've done a little better than that. What are your thoughts on this subject?


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    • profile image

      Barefoot in Minnesota 8 years ago

      this was the most promising article I could find, & it still didn't answer my question:

      when you are self-employed,


      is it when you don't make any extra & just pay the bills necessary to maintain the business ?

      is it when you're not paying those bills either ?

      when ???

    • nicomp profile image

      nicomp really 8 years ago from Ohio, USA

      @Mrs. Obvious: Sounds like you can relate! Good luck with your business.

    • Mrs. Obvious profile image

      Mrs. Obvious 8 years ago from Northern California

      I'm a dog groomer and own my own shop. I have been self-employed for 6 years and I love it. It is alot of responsibility and decision making but I love the lifestyle of being free to make my own choices and it helps me take care of my family on my own terms. I don't file quarterlies cause I have kids and usually end up being able to get the earned income exemptions. But before the recession I was just about to get nailed for taxes for the first time since business was so good. Nowadays though, I may even be able to claim a loss this year!! Good explanation, good topic.

    • Sufidreamer profile image

      Sufidreamer 8 years ago from Sparti, Greece

      Good Hub, and you hit the nail on the head.

      Self-employment is not easy, but at least I can enjoy a nice, cold beer whilst I work. Beats working in a hardware store :D

    • nicomp profile image

      nicomp really 8 years ago from Ohio, USA

      @Aya Katz: true. Most self-employed people are diversified somewhat. It's generally risky to depend on one client.

    • Aya Katz profile image

      Aya Katz 8 years ago from The Ozarks

      Nicomp, let me add one other aspect of what it means to be self-employed: it means that you do work for more than one person or entity. If you appear to be self-employed, but really you serve only one client who pretty much sets your wages and oversees your work, you are not really and truly an independent contractor.

    • nicomp profile image

      nicomp really 8 years ago from Ohio, USA

      Love the party comment. That's so true.

      I'll do a funny list next...

    • infoperc profile image

      infoperc 8 years ago from Bulgaria

      * you put down " as you ongoing employment on the numerous job-interview application

      * if your girlfriend (your mom) still has to "help out" with the bills once in a while

      * if it takes you about a minute to answer the question "so, what do you do for a living" at parties

      (would you like some more? ...

    • nicomp profile image

      nicomp really 8 years ago from Ohio, USA

      My understanding is that you need to start paying taxes (or just filing the form) at the end of the quarter when you get your tax ID. Your filing may be 'empty' but I think it needs to be submitted anyway.

    • someonewhoknows profile image

      someonewhoknows 8 years ago from south and west of canada,north of ohio

      I do have a question about self employment.I know you have to file quarterly income tax statements.My question is ;I've heard that you have to make what is called estimated tax payments based on income in past incometax quarters.When do you start paying taxes?After you earn you recieve your first months income.The reason I ask is it dosen't seem reasonable for you have to pay a tax before you make any money.

    • someonewhoknows profile image

      someonewhoknows 8 years ago from south and west of canada,north of ohio

      My father was a barber and self employed.He never explaned to his kids anything about being self employed.I would have liked to learned how that worked way back then. Too bad he didn't feel the need to share that with us.That reminds me of the stories concerning married couples where the husband keeps his wife in the dark about his finances.Then he dies leaving his wife with a big mess to deal with,and no clue as to what to do when it comes to his business.

    • nicomp profile image

      nicomp really 8 years ago from Ohio, USA

      Thank You!