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, in simple terms, the gig worker vs independent contractor debate. We’ll explain similarities, differences, and how they work.
- Are Independent Contractors and Gig Workers the Same?
- Who is Classified As a Gig Worker?
- Are Gig Economy Workers Independent Contractors?
- Is a Gig Worker Considered Self-Employed?
- Gig Worker vs Independent Contractor Taxes
- Gig Worker Vs Independent Contractor Business Entities
- Frequently Asked Questions
- Wrapping Up
Are Independent Contractors and Gig Workers the Same?
Independent contractors and gig workers do share a lot of similarities.
Both are non-traditional employment types and often work on a contract basis for companies or individuals. Both also tend to have more flexibility in their schedules compared to regular employees.
But given the similarities, are they the same?
No, gig workers and independent contractors are not the same. By definition, it is easy to get them confused, but be aware they can be very different terms.
An independent contractor is a self-employed individual who offers services to businesses or individuals.
They might work on long-term or short-term projects, and their work can range from providing a specific service (like plumbing or consulting) to offering a broader range of services within a specific industry.
They can charge an hourly fee, a flat rate, or sometimes even a commission based on completed work.
Gig workers, on the other hand, typically work on a project or job basis, often in the context of the gig economy.
This can include anything from driving for a ride-sharing company to doing freelance graphic design. These jobs are often temporary or short-term, and the worker may have multiple ‘gigs’ at a time.
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. In other words, the definition of a gig.
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.
Related: Health Insurance for Gig Workers and Freelancers
Gig Worker vs Independent Contractor: Examples of 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 freelance websites 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.
Related: How to find gigs as an independent contractor
Are Gig Economy Workers Independent Contractors?
In terms of classification, many gig workers are considered independent contractors for legal and tax purposes.
This is especially true in the United States, though this has been a contentious issue in recent years. You need to look no further than the battle over Prop 22 in California to understand this point.
In the midst of this highly-debated legal battle, the California Chamber of Commerce founded something called the I’m Independent Coalition, designed specifically to make people aware of the fight over the new worker classification.
However, not all independent contractors would be considered gig workers.
Is a Gig Worker Considered Self-Employed?
Gig workers can indeed be considered self-employed, depending on the nature of their work and their relationship with the companies or individuals they work for.
For instance, a freelance graphic designer picking up short-term projects would be considered a gig worker and is also self-employed.
These categories can overlap, and the exact definitions can depend on the legal and labor regulations of the specific country or jurisdiction.
Changes in these areas, including how workers in the gig economy are classified, continue to evolve and are often subjects of legal disputes and legislation efforts.
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Gig Worker vs Independent Contractor Taxes
Tax liability is 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 investing money into 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, meaning that gig workers must keep track of their finances and pay taxes independently.
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.
