RetirementJobs.com Staff Writers
Article 4 of 8 from "The New World of Job Searching"
An individual's employment status can take many forms - regular employment; independent contractor; self-employed; part time; full time; seasonal; and consultant. Your employment status can directly affect how you're paid, how you're taxed, what your benefits are and what level of employment security you have.
Before you launch your job search, it's important that you understand these terms so you know how to describe the type of employment you want as well as the specific job.
Regular, or direct employment refers to a relationship in which you are a "W2" employee - you receive an IRS form W2 earnings statement at the end of the year summarizing your earnings, withholdings for taxes and adjustments resulting from benefits you may participate in. Your employer withholds federal, and sometimes state and local income taxes, your contributions toward the cost of benefits, and Social Security (FICA - Federal Insurance Contribution Act) taxes. You pay 7.65% of taxable income in Social Security taxes and your employer pays the same amount. In total, the contribution is 15.30% of taxable income.
You may have an employment contract with your employer but most often you will be an "employee at will" meaning the employer can terminate employment at anytime for any reason. It is assumed that your employment is ongoing. This type of employment relationship used to be referred to as "permanent" but this expression is seldom used because of the implication that it's somehow guaranteed. You receive a periodic wage or salary, and you are eligible for benefits offered to eligible employees.
"Regular employment" is the type of relationship we generally mean when we talk about "getting a job".
Independent Contractor or Self-Employment
Independent contractor status means that you perform work but are essentially self-employed. You are not paid as an employee, but as a contractor providing goods and services to others. Independent contractors can be individuals operating a one-person landscape business up to attorneys and consultants charging hundreds of dollars per hour.
Before you get excited about working as an independent contractor, consider the financial consequences. You may get paid a higher hourly rate, but you must pay the full Social Security tax yourself, or 15.3% in the form of "Self-Employment Tax", as well as regular income taxes. Also, you will generally not be eligible for any benefits offered by your customer to their "regular employees." As the term suggest, you are a truly an independent contractor.