With the rise of the gig economy, more and more people are working as gig workers and independent contractors.
Many use these two phrases interchangeably, but they are different classifications for workers.
If you want to know the difference between these two types of workers, and which category you may fall into, you are in the right place.
This article will highlight the similarities and differences between gig workers and independent contractors.
- Are Independent Contractors and Gig Workers the Same?
- Are Gig Economy Workers Independent Contractors?
- Is a Gig Worker Considered Self-Employed?
- Who is Classified As a Gig Worker?
- Gig Worker Vs. Independent Contractor Taxes
- Gig Worker Vs. Independent Contractor Business Entities
- Gig Worker Vs. Independent Contractor Doing the Work
- Frequently Asked Questions
- Wrapping Up
Are Independent Contractors and Gig Workers the Same?
No, gig workers and independent contractors are not the same.
An independent contractor is a self-employed business entity that provides services to other businesses or a worker who has a business and offers services to other companies.
They can charge an hourly fee, a flat rate, or sometimes even a commission based on completed work.
A gig worker, on the other hand, is an individual that works as a freelancer or independent contractor.
Still, the gig worker only works on short-term projects and is not necessarily considered a business.
It is also possible for gig workers to work as a part of a company, but they are still gig workers because the nature of their job is short-term or project-based.
Are Gig Economy Workers Independent Contractors?
There is a lot of confusion about how gig workers are classified.
Gig economy workers are not independent contractors.
Being an independent contractor means being self-employed and providing services to other businesses or individuals.
Gig economy workers are not self-employed and do not provide services to other companies or individuals.
Instead, they work on a short-term basis and are gig workers.
Is a Gig Worker Considered Self-Employed?
No, gig workers are not considered self-employed.
The basics of gig work are that an individual runs a business and provides services to other companies or individuals.
Gig workers are not self-employed as they do not have a business and usually take on short-term jobs or projects.
The definition of a gig is any short-time task that you are paid to do.
Who is Classified As a Gig Worker?
There are several different types of gig workers.
Gig workers can come from all backgrounds and professionals, such as drivers, gig economy platforms, freelancers, entrepreneurs, artists, and more.
Gig workers can work as an individual, or they may operate under a company.
However, gig workers are typically hired on a short-term basis and do not have long-term contracts or jobs.
Any worker completing tasks on an as-needed basis without long-term contracts or employment is considered a gig worker.
Additionally, most gig workers do not receive healthcare and other benefits that regular employees receive.
Gig Worker Vs. Independent Contractor Taxes
Taxes are one of the most important aspects of working that gig workers and independent contractors have to manage.
Since both types of work are not considered employees, they are responsible for recording their finances and paying taxes independently.
They are considered 1099 contractors and not W-2 workers.
W-2 workers have taxes automatically withheld from their pay, whereas gig workers and independent contractors have to set aside money each year to contribute towards taxes.
Additionally, gig workers and independent contractors can take advantage of retirement accounts such as SEP-IRAs, Solo 401Ks, etc.
These accounts are designed for gig workers and independent contractors to help them save for retirement while saving on taxes as well.
Gig workers and independent contractors have to report their income, pay taxes on it, and manage deductions.
They are required to make estimated payments directly to the IRS and pay for state and local taxes.
Independent contractors and gig workers must pay taxes on their income, and they can deduct business expenses such as office supplies, travel costs, and other business-related items.
Additionally, gig workers may be able to deduct certain expenses related to their gig work, such as vehicles or equipment.
The claims gig workers can make depend on the job they are doing and vary widely from person to person.
Gig Worker Vs. Independent Contractor Business Entities
Creating a business entity is one of the most important things that any self-employed individual does.
An LLC or limited liability company is the most common business structure for gig workers and independent contractors.
Gig workers and independent contractors can also opt to be sole proprietors or create an S-corp or C-corp.
Depending on the gig worker’s or independent contractor’s situation, these business entities have different benefits and disadvantages.
Many independent contractors chose to form an LLC instead of an S-corp or C-corp.
An LLC gives gig workers, and independent contractors limited liability protection, as well as tax advantages.
However, not all independent contractors form a business entity.
Some gig workers and independent contractors choose to remain as sole proprietors.
A sole proprietorship means gig workers must keep track of their finances and pay taxes independently.
Gig Worker Vs. Independent Contractor Doing the Work
Other people or companies hire gig workers and independent contractors.
How they do the work depends on the types of work and the nature of the gig.
Gig workers usually work on short-term projects and are hired for specific tasks.
They do not have any long-term contracts or commitments and may work on various projects.
On the other hand, independent contractors have longer-term contracts and are hired to do specific tasks or provide services for an extended period.
They may have a consistent workload or multiple clients, which can lead to more stability than gig workers.
Independent contractors must provide the work themselves, whereas gig workers typically do not need to give any of the work themselves.
Gig economy platforms usually assign gig workers to jobs, and companies can also hire gig workers on a short-term basis.
For example, ride-sharing apps like Uber and Lyft provide work for gig workers.
An independent copywriter could be hired to write a blog post for an extended time but has to find work on their own or through a website like Upwork or Fiverr.
As a result, independent contractors often make much more money than gig workers because gig jobs tend to be cheaper and less technical.
In contrast, independent contractor jobs tend to be more complicated and, therefore, more expensive.
Frequently Asked Questions
There are some commonly asked questions about the difference between gig worker vs. independent contractor.
Do Gig Workers Need an LLC?
No, gig workers don’t generally need to create an LLC.
Gig workers usually work on a short-term basis and therefore do not need to build their businesses.
However, some gig workers can form an LLC for tax and legal purposes.
It depends on the type of gig work you are doing.
How Do You Prove Income for a Gig Worker?
Gig workers can prove their income by providing invoices, payment records, and other documentation of the work that they have completed.
Gig workers must keep close records of their income to pay their taxes accurately.
Wrapping Up
Now that you know the difference between gig workers and independent contractors, you can decide how to classify your work.
Gig workers have the flexibility to work on short-term projects, while independent contractors can provide services and create a business entity.
It all depends on what you are looking for from your gig or project.
Regardless of the type of gig worker or independent contractor you are, it is crucial to stay informed about taxes, business entities, and doing the work.
