An Ultimate Guide To Self-Employment: Definition and TypesAima Irfan
According to research, the number of self-employed people in the United States is 24.8 million. Other than this, there are individuals who are self-employed, and run their small business by employing others. At last, who does not like to be their own boss?
The trend of self-employment has increased over a period of time. With the evolution of technology, there are many opportunities available for people to start their own business rather than working for someone else. For example, the current generation aspires to be entrepreneurs and strive hard to achieve their goals and objectives. We do not have a shortage of self-employed individuals who are working day and night to make ends meet.
What is Self-Employment?
Self-employment is a state where an individual works for himself. A self-employer does not work for any specific worker. Self-employed people and independent contractors earn their income by trading or doing business directly. There are a variety of occupations in which a self-employed individual can indulge which will be discussed later in this article. There is a slight difference between self-employment and entrepreneurship. Self-employment is an organization that has been developed to give jobs to the founders. Whereas entrepreneurship is large organizations that employ other people to do the work and achieve the goals and objectives of the organization.
Advantages of Self-Employment
Majority of the individuals prefer self-employment because of the advantages associated with it. The advantages of self-employment are as follows;
- One of the biggest advantages of being self-employed is that you are your own boss. You are in charge of making all the decisions for the organization.
- Being a self-employed individual, you can work flexibly. The schedule and working hours can be fixed according to your flexibility.
- The earning opportunities depend upon the abilities and skills of the self-employed worker. You’ll be earning more than a typical job.
- Being self-employed makes you more productive. The performance of the employee increases by 13% when they are working from home because it lowers their stress and boosts their morale.
- You have the freedom to travel more and carry on with your personal life more efficiently. As a result of self-employment, you can stay home and enjoy your life while working as well.
Disadvantages of Self-Employment
Everything which has benefits comes with disadvantages as well. Some of the disadvantages which are associated with self-employment are as follows;
- No guaranteed fixed income or salary per month.
- In an office job, the working hours are 9 am to 5 pm. Self-employment requires hard work, consistency and long hours of work.
- Although, you can work flexibly when self-employed but there can be distractions too. You have family and friends around at any time that will distract you from your work.
- Work and travel seem easier when you’re self-employed, however, in actual it is not that easy. You will have a lot of responsibilities and you have to work longer to deliver work on time.
Types of Self-Employment
There are several types of self-employment opportunities available to people.
Business Structures for Self-Employed
For self-employed people, there are 5 legal types of business structures that can be adopted. Every business structure has its own implications with respect to taxes.
- Sole Proprietorship
- Limited Liability Company
Sole proprietors are the business owners of the unincorporated business where they report their income tax on personal tax returns. On the contrary, partnerships involve two or more persons in an agreement who operate the business together. People working in a partnership often hire some individuals to work under them. Most importantly, people can work in a partnership regardless of having a formal partnership. C-Corporation is a separate entity that is subject to corporation tax rates. Moreover, an individual can also form a limited liability company in order to limit liability. In S-Corporation, business owners are provided with special tax advantages.
In conclusion, self-employment has many advantages and disadvantages which one should consider before deciding. People who do not like working for someone else can definitely consider the option of being self-employed. It is important to understand the business structures associated with self-employment in order to run a smooth business.