As we came across the term “self-employed” and “independent contractor”, we might think that they are actually the same since these people do not work full-time. However, not all self-employed is considered as independent contractor.
What is Self-Employed?
A Self-employed individuals work for themselves. They are also being classified as a Sole Proprietorship. This means that they are classified as someone who generates income on their own. They are not typically employed by someone else or an employer, nor a traditional employer-employee relationship.
You are classified as self-employed if you run your own business entity or trade, which you are directly offering goods or services to clients and making own decisions about how, when, and where you’ll be working.
Common Examples of Self-Employed Individuals
Online Sellers
Consultants
Freelance graphic designers
Bloggers
Private tutors
Small business owners
What is Independent Contractors?
An independent contractor is considered self-employed individual that offers the general public, whether an individuals or companies, with goods or services. This means these individuals under this classification works for others under contract.
But keep in mind that independent contractors are not company employees, they just provide specific goods or services to clients or businesses for a fee, usually under written agreement.
Common Examples of Independent Contractors
Virtual assistants
Web developers
Freelance writers
Photographers
Marketing Strategists
App Developers
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Key Differences between Independent Contractor and Self-Employed
Self-Employed worker | Independent Contractor | |
Work Setup | Runs a business such as a small bakery, online store, or repair shop selling products/services to customers. | Works on specific projects for a client, e.g., builds a website for a company. |
Client Relationship | Sells directly to the end customer with no contract obligations, e.g., a soap maker selling at fairs. | Has a formal contract or service agreement, e.g., a freelance video editor hired for a 3-month campaign. |
Control | Decides pricing, business hours, marketing, and operations independently. | Has autonomy over how the work is done but must meet client deadlines and scope. |
Income Tax | Files as a self-employed business owner. It includes business taxes if you own a business. | Files as self-employed too, but earnings are often reported through official contracts. |
Legal Structure | May be registered as a sole proprietor or partnership. | Typically operates as a sole proprietor with a professional services contract. |
Registration and Compliance
In the Philippines, whether you’re self-employed or an independent contractor, it’s important to comply accordingly under Philippine law. Suppose you are a self-employed individual who owns a business. In that case, you must register your business with the Department of Trade and Industry (DTI) and obtain the necessary business permits and licenses.
It is also mandatory for you to register and file taxes with the Bureau of Internal Revenue (BIR). This includes application of BIR Form 1901, Tax Identification Number (TIN), Official Receipts or Invoices, and Books of Accounts.
Final Thoughts
Self-employment and independent contracting give you the freedom to manage your time, choose clients, and build your brand. But with that freedom comes responsibility.
Understanding the difference is not just a matter of words; it affects your taxes, legal status, income potential, and future growth.