Gig workers and contractors: What's the difference?

Headshot for Amanda Graber, Content Marketing Specialist for ComplYant, a business tax tool for entrepreneurs and small businesses.
By Mandy Graber

Sometimes business owners need subject matter experts or extra help with a temporary project. In these situations, it often makes sense to hire a freelancer. Freelancers typically work for themselves as gig workers or independent contractors. They may be designers who can help businesses create new logos. Maybe they fill staffing gaps when a company works to complete a major project. Some people use third-party platforms to do deliveries or errands for others. 

In the United States, there are over 57 million freelancers who take on work as gig workers or independent contractors. Usually, gig workers and independent contractors work for multiple clients and are not hired for long periods. However, there are some differences between them.

What is an independent contractor?

Independent contractors work in various industries, such as marketing or software development. They are self-employed. This means a single company does not employ them. By working independently, they can set their work hours, rates, and any other aspects of their job. 

Unlike a traditional employee, an independent contractor usually receives a 1099 instead of a W2 from each client. Unlike an employer, clients don’t withhold taxes or pay any share of payroll taxes. This means independent contractors have to withhold and remit their own income taxes. They are also typically responsible for the full payments of taxes like Social Security and Medicare.

What is a gig worker?

Jazz musicians often referred to their paid performances as “gigs.” Today, the term “gig” can refer to more than a single paid music performance. We use the term for any one-off paid task or short temporary job. 

Now, when people think of gig workers, they often think of individuals who use third-party platforms to find “gigs.” Companies like Lyft, Grubhub, Instacart, and TaskRabbit allow people to take jobs on their own time to earn money. By accessing these company platforms, nearly anyone can accept a job request. The tasks vary and can include ridesharing, food delivery, errands, and furniture assembly. 

How gig workers handle taxes can vary depending on the platform they use. Many third-party companies treat gig workers like independent contractors. This means they handle their own taxes. The company doesn’t withhold or pay any on their behalf. If you’re a gig worker, check with the platform you use.

What do gig workers and independent contractors have in common?

Both gig workers and independent contractors are considered freelancers. They are not typically employed by a single company. Instead, they take jobs autonomously. Ultimately, this gives both a lot of control over their work-life balance and the type of work they do.

Independent contractors and gig workers can enjoy a lot of flexibility. They are in control of how and when they take work and clients. They can often work from anywhere or travel where a client needs their services. Because they set their own hours, they can also accommodate clients in other parts of the world or take time off when needed.

Because of their independent status, both gig workers and contractors also have a lot of freedom to choose how they’ll complete their jobs. Often they can accommodate their own working style. They can work off-hours when they feel most productive. They may choose a location that’s the best for their concentration. Others can customize their work process, from batching to time-blocking, without interference.  

How are gig workers and independent contractors different?

Although gig workers and independent contractors have much in common, there are some differences. These differences impact their day-to-day schedules and how they manage their work. 

Though it’s not always the case, gig workers often work on demand. They log into third-party apps and take client requests as they become available. Often these requests are tasks that are brief, such as delivering groceries or walking a dog. This means gig workers often complete multiple jobs in a single day. However, there are some cases where gig workers may take on longer work, such as taking on temporary work as virtual assistants.

Independent contractors often take on clients for somewhat longer projects. They may work for the same client over a period of weeks or months. Their work may also be specialized, such as business development, design, and financial advising. Their work often focuses on a single goal, like planning a big event or restructuring a struggling business. 

Another important difference between gig workers and contractors is the amount of control they have over the work they do. Gig workers typically have no control over the work they do or the terms of the job. They usually have guidelines set by a third-party platform. Independent contractors, however, have more control over their work and more flexibility in setting their own terms. 

Gig workers and independent contractors: Everyone faces taxes

Across the United States, lots of workers are embracing the freelancer lifestyle. However, with this flexibility often comes the challenge of managing taxes. The IRS typically considers gig workers and independent contractors to be self-employed. This means they handle their own taxes. 

Taxes can be tricky if you’re self-employed. Having a gig-based job can make it hard to estimate what taxes you should pay each quarter. The IRS is starting to really enforce taxes in the gig economy. Some gig workers and independent contractors don't know about the deductions they can get or how to file their taxes. 

It is essential for freelancers to stay up to date on tax deadlines and the requirements for filing. Failure to do so can cause penalties and interest. Here are some key things for gig workers and independent contractors to keep in mind for taxes: 

  1. Check the tax rate for your income and adjust as your income changes. 
  2. Stay up to date on filing requirements. 
  3. Keep track of all your expenses and take advantage of deductions. 
  4. Budget for estimated tax payments and pay on time. 
  5. If you’re unsure, consult a tax professional to stay compliant. 

In the gig economy, understanding the tax implications is essential. Staying current on tax requirements can ensure that you comply with the law and help you avoid penalties and interest down the road. ComplYant can help you by taking the guesswork out of which taxes you may be responsible for and helping track deadlines. You can sign up for a free account today. 

Headshot for Amanda Graber, Content Marketing Specialist for ComplYant, a business tax tool for entrepreneurs and small businesses.
By Mandy Graber
Mandy is a seasoned content creator with experience in a wide variety of industries. She works alongside our ComplYant Tax Experts to help make tax-related content more accessible to everyone. In her long tenure as a writer and content creator, she has covered a wide array of topics, including insurance, education, financial technology, and more.

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