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How to Become an Independent Contractor: A Step-By-Step Guide

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Are you trying to shift from full-time employment and attract work as an independent contractor?

With a marketable skill set and a knack for converting prospective clients into part-time employers, you can do that easily.

We’ve assembled a complete guide on how to become an independent contractor and work on your terms.

An Overview of Independent Contractors: A Primer

An independent contractor, typically different from a gig worker, is a self-employed working professional offering services to businesses through contractual employment.

As the business owner won’t consider you equivalent to a full-time employee, you’ll handle your own taxes and health insurance.

Since side income earners provide services on a per-project basis, expect more freedom to work on your own schedule while accommodating your day job.

A little personal branding and marketing of your niche expertise can unlock a string of retainer projects with high-ticket clients.

Besides paying your own business expenses, you won’t receive additional employee benefits. But this is neutralized as you can embrace the remote working culture without requiring a fully equipped office space.

Over time, independent contractors can hire employees to meet high workload demands. 

Sometimes, particular vocations may require business licenses to enjoy uninterrupted cash flow.

Overall, since you don’t work for a corporation on a full-time basis, expect complete control of the projects acquired and your personal finance sheets.

How Much Do Independent Contractors Make?

Independent contractors can make enough money through side gigs, provided their services are in demand.

A self-employed individual under the bracket of private contractors can make $20/hour for manual labor gigs and up to $60/hour for high-level marketing and managerial projects.

Once you create a private contractor business with the sole proprietorship under your name, create pricing plans and a list of add-on services that prepare you for high-income projects.

Whether graphic designing for marketing agencies, real estate consultancy for luxury properties, or do-it-yourself (DIY) projects like woodworking, painting, or plumbing, you can quote charges based on investments in equipment, time, and effort.

For gig economy workers with experience in managing teams, consider applying for executive private contractor roles. Such roles pay upwards of $90/hour.

What You’ll Need to Become an Independent Contractor [& Associated Costs]

Though independent contractor gigs offer the privilege of being your own boss, accounting for the associated costs highlights whether you have the financial capacity to build a career using this employment type.

Here are a few investments you may make:

1. Marketing Mediums

You can use inexpensive one-time marketing materials like business cards or build a low-cost digital footprint. While 500 aesthetic business cards cost $50, a basic website may require up to $200.

If your business structure includes a team of independent contractors, you may invest in social media marketing for widespread advertising services.

2. Attorney for Contracts

Some companies may save your personal finances by sending you contracts. For organizations that don’t offer this service, you must hire an attorney to keep your subcontractor agreements in place.

While such agreements usually include the project scope, payment terms, pricing, and other legalities, attorneys can charge a flat fee of $200-$400 as per the complexity of your employment terms.

3. Licensing

Chances are your regional government rules require a proper business license to verify your taxable income and register your tax bill.

Though a sole proprietor may not need one, an LLC, LLP, and S-Corp business type mostly does. While services like freelance writing or design work may not require licenses, contractual employees like insurance agents must account for a license in their setup expenses.

Expect to pay approximately $150 to register the license.

4. Registering Business Name

Speak to a lawyer to understand whether you require a business structure to optimize tax obligations or a specific business bank account.

Becoming an independent contractor working with multiple clients may also demand a business name to improve project recall and marketing plans with consistent brand communication.

Side income earners generally pay under $300 for registering a business name.

5. Filing Taxes

Account for taxes by consulting with a tax professional to ensure you can deduct business expenses like travel and internet connectivity.

When you’re not an employee working on a full-time contract, expect to pay around 15.3% of your earnings as income tax.

How Much Does It Cost to Become an Independent Contractor?

It may cost side income earners $900 to $1,100 to launch their independent contracting business if they start as freshers.

For people with multiple clients, employees, and retainers, expect to pay $1,500 in expenses to sustain your business.

Is It Hard to Become an Independent Contractor?

Though finding employment as an independent contractor isn’t as easy as working for Uber or Lyft, experience in pitching and expertise in a specific skill make it relatively simple. Additional knowledge of managing business income and workflow can simplify your journey.

Consider creating a document highlighting your primary and secondary skills that can help businesses improve their productivity.

Compare quotations with fellow private contractors and conduct an analysis to check for skill gaps. Capitalize on this research by adding extra value to your services through these skills.

Side income earners may struggle with local laws pertaining to independent contractors, but consulting a hiring company or an attorney for tax purposes can help.

How Long Does It Take to Become an Independent Contractor?

Setting up your business plan and applying for official tax registrations may take 2-4 months. Once ready, register a business name and open a business checking account.

Butter up your launch by creating systems to manage client queries, finances, and employment taxes hiring parties don’t provide support for.

While most banks are quick to open contractor accounts, don’t rush on deciding whether you need a limited liability company or other business registration type.

How to Become an Independent Contractor in 5 Simple Steps

vector graphic showing an illustration of people trying to become an independent contractor

Depending on your services and their scaling potential, the complexity of starting your career as an independent contractor varies. Follow these five simple steps and learn how to establish yourself as an independent contractor:

Step 1: Choose Your Vocation and Purchase Licensing

Choose a single niche, and try making this decision after carefully assessing your educational or work qualifications. This ensures you choose a viable side income path capable of roping in clients and employees.

After choosing your service industry, researching licensing requirements is a critical step. Their rules and regulations often differ based on your state and country of residence.

Step 2: Curate a Business Plan

Tailor your business plan to meet any commonalities with self-employed businesses. Choose a brand name and understand metrics that can lead to price variations in your quotations.

Create an executive summary describing what your core services offer and how clients benefit. Remember to check market trends and recognize competitor strategies to give your business an edge.

A self-employment business calls for carefully charting out prospective expenses, be they related to lead acquisition or software costs.

Step 3: Open a Business Checking Account

Independent contractors must manage personal and business expenses through separate accounts despite this being a part-time side gig.

If you’re lucky, your banking service provider may offer an extension for a business account on your existing checking account. In the rare event of a lawsuit against self-employed individuals, keeping personal and business expenses in a single account can backfire.

Not to forget, paying taxes during the income tax period is simpler if you create a minimum account balance in your business account to meet quarterly tax payments.

Step 4: Refine your Marketing Etiquette

Unless you depend on a single company for consistent part-time employment, which typically isn’t recommended, you must establish time-tested marketing practices for a constant in-flow of leads.

If the budget isn’t on your side, look for low-cost communication mediums like LinkedIn marketing or participating in networking events.

Work on developing content displaying your long-term industry expertise. Create opportunities for companies to recognize your insightful ideas, and leads shall naturally pour in.

Step 5: Optimize Record Maintenance Systems

Choosing to wing it when managing client and project data may put your record-maintenance systems in a haywire state.

Systematic record-keeping can help in claiming business tax deductions for better tax returns.

Double-check whether all transactional details hold correct information.

Reasons to Consider Becoming an Independent Contractor

An independent contractor has the potential to earn thousands of dollars a month by working on their own hours for either a large or small business.

Along with a flexible schedule and no obligation to obey every command of your employer, you can avail many benefits like:

  • Restriction-Free Freedom: Though initial phases require you to perform groundwork, gig economy earners enjoy immense flexibility in the long run.
  • Accept Multiple Projects: Increase your side income revenue potential and attain financial stability through several retainer projects as an independent contractor.
  • Room for Experimentation: Work with several clients and acquire new skills to check your suitability to become a future business owner.
  • Gain Extra Experience: Besides better business income, working in the gig economy as an independent contractor pockets you more experience, especially when participating in distinct projects. For example, you can fulfill independent deliveries or complete weekend plumbing jobs to double your income stream.

Frequently Asked Questions

How Can You Get a Job as an Independent Contractor?

Once you succeed in becoming an independent contractor, look for contractual jobs on gig platforms like Upwork or employment communities within your niche.

Learn the art of pitching and empathizing with your prospect’s problems. This builds credibility, potentially transforming into a contractual employment role.

Do Independent Contractors Get Bonuses and Promotions?

Though they offer bonuses for completing projects before deadlines with aplomb, promotions are rare.

Unless you display exemplary work showing higher standards than the company’s expectations, chances of promotions are bleak.

Similar Gigs to Check Out

Bring in more freedom to accomplish your side income goals through these similar gigs:

Wrapping Up

Though health insurance and support for income taxes aren’t an assurance for independent contractors, earning money in the part-time job economy through such gigs is a guarantee.

To simplify your journey, our guide throws light upon the advantages, hardships, and processes involved in scoring contractual roles.

Do share your opinions below and share this piece with fellow side income earners.

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