Archive for July 15th, 2013

Are We Sole Proprietors or Independent Contractors?

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Someone asked the question on a listserv I’m on: Are we sole proprietors or independent contractors?

Here is the answer:

These are just different terms for the same thing: business owner. There is no difference.

It’s just that when someone goes into business for themselves, they are self-employed. By default, when there has been no official business formation filed, anyone who is in business is a sole-proprietor (unless they have a partner, in which case they are a partnership).

There are legal guidelines that govern self-employment. When someone is self-employed, they are still a business. And when you are in business, by law and by practice, it is you who determines everything in your business: how the work is done, what you charge, when, where and how you work, what tools you use… everything.

As someone who is a self-employed business owner (independent contractor), the people you work with are clients. Clients do not get to determine any of these things (and it is their duty and responsibility in business to know this).

They come to you because you are in business to provide a particular service and expertise they have need of. However, any client who is setting your “rate of pay,” supervising you or controlling any other working conditions is no longer a client. By law, they are an employer.

It’s important for people going into business for themselves to understand these distinctions. Employers who engage in illegal misclassification of employees pay stiff and severe penalties when they are caught. They are actually also stealing from these people because they are not paying into Social Security and Medicare funds and all the other legally required benefits and standards that employers are liable for.

I have a free Intro to Business Formations guide that you can download here: