What is Self-Employed?

Definition: A self-employed individual can be defined as an independent worker that conducts business or professional activities for his own benefit. In other words, it can be identified as a person that works on his behalf and not directly hired by a third party.

What Does Self-Employed Mean?

Self-employment is becoming more and more common nowadays since there’s a whole movement towards entrepreneurship. The definition of self-employed covers an ample range of activities but overall, for a person to be considered self-employed it should meet these two characteristics: number one, that his primary income is earned from self-made activities and number two, that he conducts himself independently, this means, he makes his own choices about where and when to work.

Business owners, independent contractors, accountants, financial advisers, insurance agents, among many other professionals are commonly self-employed. This means that even if they have a contractual relationship with a company they are fully independent and free to make decisions about their workflow and responsibilities. Self-employment has many advantages like flexible schedules, a highest cut on the profits and self-selected vacation periods but there are also some disadvantages.

For example, self-employed individuals are more susceptible to economic shifts, since they don’t have a regular, fixed stream of income. This means that they might suffer a lot from an economic downturn in their industry or overall. Also, they have to assume some expenses that are normally covered by companies, like HMO, car insurance, cell phone plans and office equipment required to conduct their activities.

Here’s an example.

Example

Mr. Lloyd is a 53 years old independent accountant based in Manhattan. He works for many companies in the city providing them with bookkeeping services and doing their taxes. He also provides financial advice and tax-optimization tips. He has an annual income of $150,000 and he has 3 accounting assistants supporting his day-to-day activities. Is Mr. Lloyd a self-employed individual?

According to our previous concept, Mr. Lloyd meets both conditions of having a primary income coming from self-made activities and conducting himself independently from others. Even if he services other companies, these companies should be considered as clients and not as employers.