The gig economy - work arranged through short-term contracts or freelance assignments rather than traditional employment - has grown substantially, and it comes with a genuinely different financial structure than a traditional job.

Employee versus independent contractor: a real legal distinction

An independent contractor provides services to a business without being a formal employee, meaning the business generally doesn’t withhold taxes, provide standard employee benefits, or offer the same legal protections that apply to employees. This distinction isn’t just semantic - it changes real financial obligations, particularly around taxes.

The tax difference most new contractors miss

1099 income - named for the tax form used to report it in the US - is paid without any taxes withheld in advance, unlike a traditional paycheck, covered in the money basics module’s treatment of withholding. Self-employment tax covers the portion of payroll tax, introduced in the taxes module, that an employer would normally split with an employee - as an independent contractor, that full amount falls on the worker alone.

Benefits become the worker’s own responsibility

Health insurance, retirement contributions, and paid time off - all covered as employee benefits earlier in this module - typically aren’t provided at all to independent contractors, meaning a contractor needs to price and plan for these separately, often by building their cost directly into what they charge for their work.

Why this connects to the rest of this module

Whether work is structured as traditional employment or independent contracting, a worker’s protection if that work disappears unexpectedly - covered in the next lesson on unemployment insurance - can look very different depending on which category applies.