What Does It Mean to Be Self-Employed? A 2024 Guide

As a self-employed individual, you work for yourself or conduct business independently. You don’t have a specific employer paying your salary or offering you benefits. According to the Pew Research Center, more than 16 million workers in the US have opted to work for themselves[1]. Whether you're thinking about making a career change or beginning your professional journey working full or part-time as a self-employed individual, the more you know ahead of time, the smoother the process can be. 

Read on to learn about types of self-employment, the benefits of this type of work, and the challenges you may face.

What is self-employment?

The Internal Revenue Service (IRS) defines being self-employed if you work as an independent contractor or a sole proprietor. You might also partner with two or more people in trade or business. Running a part-time business or being a gig worker also counts as self-employment. Even if you do all your work for a single client, you’re still self-employed if they do not pay you as their employee.

When you're self-employed, your business may or may not be incorporated. As a sole proprietor, you can choose either structure to organize your business. If you go into business with a partner or plan to hire employees, you may choose to incorporate the company.

Read more: 21 Side Hustle Ideas and How to Get Started

Types of self-employment  

Self-employment takes different shapes for various individuals. You might be an independent contractor or freelancer, work in the gig economy, or run your own business. Explore each type of self-employment in more detail below.

Independent contractors

When you work as an independent contractor, you get hired for a particular job and paid by the project instead of wages. You provide your tools and supplies and receive payment when the work finishes, and you do not have a guarantee for further work. You're not considered an employee in this role and get no benefits or workers’ compensation. 

The following types of people might work as independent contractors:

• Doctors

• Lawyers

• Accountants

• Journalists

• Mechanics

• Florists

• Dentists

• Real estate agents

Gig workers

Gigs are non-traditional jobs that people often do part-time in addition to other work. You get hired to complete a single project or task on demand. As a gig worker, you don't have a long-term working relationship like an independent contractor and have to find another job once the gig is over. You may juggle multiple jobs simultaneously and use digital marketplaces and apps to connect with clients.

The range of gig workers includes the following:

• Ride-share or delivery drivers

• Etsy shop owners

• Artists

• Dog walkers

• Pet sitters

• Content writers

Read more: Working as a Freelancer: Your Guide

Independent businesses

As a self-employed individual, you may have a business with a physical office or space where you meet with customers and clients. For example, you might open a shop to buy and sell goods instead of posting items for sale only on online marketplaces. You could also offer construction, landscaping, cleaning, handyman, or other services based out of a warehouse or office. Another option is to join a franchise, which gives you the benefit of starting with an established business brand.

Read more: Business Entrepreneurship 10 Steps to Starting a Business 10 Steps to Starting a Business

Benefits of being self-employed

Self-employment offers individuals several advantages, including flexibility and autonomy. It can also provide more opportunities to explore your interests. Some of the primary benefits of self-employment include the following.

1. Hours

Since you’re in charge, you get to choose when and where you want to work. You can work after the kids sleep if you're a night person. Or you can finish your day by 3 p.m. and still have time to go to the gym and have an active social life if you're an early riser. Depending on where you decide to open an office, you may be able to save time by eliminating the need to commute and engage in office chit-chat.

2. Independence 

When you’re self-employed, you’re the boss. This autonomy means you can choose what you do, how you do it, who you work with, and where you work. Your work becomes more than what you read in an HR-developed job description. You can be creative and try new roles and projects without reporting your work to a supervisor. Digital technology today also makes it easier for you to work where you want.

Read more: Choosing Your Business Structure: Types and Use Cases

3. Financial return

Whatever income you make is yours alone when you're self-employed. Knowing that your hard work directly benefits you instead of your employer’s bottom line feels good, but you also have more control over how much you can earn. Instead of negotiating a salary and bonus with your employer, you talk directly with your clients and decide how much you will charge them for the work you do.

4. Growth options

Being able to choose the projects you want to do and the people you work with can create opportunities for personal and professional growth. You get to try out roles that let you grow in new ways without needing the approval of a committee of supervisors who may have a one-sided view of your strengths. The flexibility in your schedule makes it possible to take classes or attend workshops to develop or fine-tune your skills. This benefit is one of the reasons self-employment often appeals to those looking for a career change.

Challenges of self-employment

When you shift to being self-employed, you will likely deal with some challenges. Since you're making the decision, you are also responsible for taking care of the finances, purchasing insurance, and managing your time. It can stretch you in new ways, including:

1. Tax implications

Your taxes look different when you're self-employed. The IRS still expects you to pay taxes on what you earned during the year, but you don't have an employer deducting money from your paycheck to cover your income tax bill or your portion of the Social Security and Medicare tax. These obligations require tracking your income and expenses to assess whether your business operated at a loss or earned a profit. The IRS also expects you to pay estimated taxes based on what you earn each quarter.

2. Insurance responsibilities 

Self-employed professionals find their own health coverage. Instead of participating in an employer-sponsored group health plan, you can turn to the health insurance Marketplace to find an individual health plan or work with a local agent or broker to help locate coverage that meets your needs. Depending on your household size and the money you expect to earn, you could qualify for tax credits to help lower your plan costs. A self-employment earning calculator, such as this one from , can help you determine the estimate. 

3. Business expenses

When you work for a company, it typically provides you with the technology and tools needed for the job. However, when you're self-employed, you must provide tools and technology, such as a computer, office space, and a company car. You may be able to deduct these expenses at tax time, so keep the records that prove you purchased the items for work. 

4. Time off 

When you're self-employed, you decide all your paid holidays, sick days, and vacation time, but you may find yourself working anyway on your days off. Turning down work can lower your income, leaving you reluctant to take a break. Finding someone to cover you if you’re sick or want to vacation can also be more challenging since you don't have a pool of coworkers who can take over your responsibilities while you're out.

5. Isolation

Some self-employed people work alone, and you may miss being able to grab a coffee in the office break room with coworkers or get the latest gossip at the water cooler. You’ll also often be the sole person bearing the stress of finding work, doing the job, invoicing clients, and following up on payments. If a particular aspect of self-employment isn't enjoyable, you might have to wait before outsourcing it to someone else.

Get started today

Depending on the specifics of work, self-employment offers you the flexibility of choosing your schedule, work environment, and approach to work. Taking a business course can help you launch your career among the self-employed. 

If you are considering starting an independent business, you could benefit from the Startup Entrepreneurship Specialization on Coursera as you develop your plans. The University of Illinois’s Federal Taxation I: Individuals, Employees, and Sole Proprietors can help you understand the different tax treatments for self-employed individuals and sole proprietors. You can also enhance your Business Writing skills with the University of Colorado Boulder’s course focused on clear and effective communication.