Self Employment Laws
Self-employed individuals have certain freedoms other employees might not enjoy. Working for yourself does not exempt you from having to follow existing laws, however, and there are some laws that pertain only to self-employed workers. Depending on your occupation, licensing requirements might be mandatory, and you will be responsible for taking care of your own taxes.
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Independent Contractor
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Ask yourself if you are truly self-employed or if you are actually an employee. An independent contractor might assume he is self-employed, yet be considered an employee under the tax law. An example of this is a "statutory employee," such as someone who sells insurance policies and is paid on commission, yet only works for one company. Another example is one who works out of her home for an employer and who operates according to certain requirements outlined by that employer. Under the tax definition, these workers are not self-employed.
Taxes
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If you are self-employed, under the law, you are responsible for paying all of your Social Security and Medicare taxes. If you work for someone, the employer puts in half of the taxes, and you match the other half. Since you are working for yourself, you are required to put in the entire amount. To offset the cost, you can deduct half your self-employment taxes.
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OSHA
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The Occupational Safety and Health Administration oversees the Occupational Safety and Health Act of 1970, a law passed to protect the safety and health of workers. This means that businesses must comply with the standards for safety set forth by OSHA. However, self-employed individuals are exempt from having to follow OSHA guidelines, but cannot engage in any illegal practices, such as illicit dumping or mishandling of chemical products.
Licenses
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Depending upon where you work and what you do for a living, licensing may be required. Alaska and Washington are two states requiring all businesses to be state-licensed. Licensing might be required for your occupation, as well. For example, if you are an electrician, local cities and state laws might only allowed licensed electricians to operate a business. Check with local and state offices to determine licensing needs in your occupation and state.
Workers' Compensation
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Some states, such as California, require all workers, regardless of whether they are employees or self-employed, to have some form of worker's compensation insurance. To get coverage, you must meet certain requirements prior to entering into the system.
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References
- IRS.gov: Independent Contractor (Self-Employed) or Employee
- The 'Lectric Law Library: Social Security Fact Sheet
- United States Department of Labor: Occupational Safety and Health Administration
- NOLO: Do Independent Contractors Need Business Licenses?
- State of California: Eligibility for Disability Insurance Elective Coverage (DIEC)
- Photo Credit man working, door image by Greg Pickens from Fotolia.com
