All apples are fruit, but not all fruit are apples. That’s essentially the difference between independent contractors and self-employed workers. All independent contractors are self-employed, but not all self-employed people are independent contractors.

For hiring purposes, you treat them the same: You don’t employ contractors—they technically employ themselves. However, there are key differences between the two. And when working with either group, you need to stay compliant with legal and tax regulations to protect your business and your workers.

What is an independent contractor?

An independent contractor is someone contracted by an individual or company to provide a service.

According to the IRS, “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

Contractors, or freelancers, tend to be highly skilled in specific fields, often found in such industries as law, accounting, writing, programming, construction, and more.

Contractors aren’t employees. In the U.S., the IRS outlines three key differences:

Behavioral control – Contractors decide how, where, and when to work. Employers can only define what the result is—not how it’s done.
Financial control – Contractors set their own rates and choose how to get paid.
Relationship – Contractors don’t receive benefits and typically work short-term or on a per-project basis.

Misclassification is a serious risk. Make sure that your contractors really are contractors—not employees misclassified as such.

Simply issuing a 1099 is not enough to prove contractor status. For example, Washington’s Department of Labor & Industries states that “a 1099 form is a federal form and has no bearing” on local worker classification.

Contractors are usually hired for short-term needs or specific deliverables. For instance, a social media specialist could be contracted to create and schedule 10 posts per week for $2,000/month.

For more info, check out our Guide on Who to Hire: Contractor vs. Full-Time Employee.

What does “self-employed” mean?

Being self-employed means someone earns income by working for themselves instead of for an employer.

The IRS explains that you’re considered self-employed if you:

Carry on a trade or business as a sole proprietor or an independent contractor
Are a member of a partnership carrying on a trade or business

Self-employed people find their own work, aren’t guaranteed a salary, and take on full responsibility for taxes and compliance.

Common business structures for self-employed people:

Sole proprietorship – The simplest form, where business income = personal income → Independent contractors and freelancers typically fall here
Partnership – Two or more owners split profits, responsibilities, and liabilities
Limited Liability Company (LLC) – Offers legal protection and flexible taxation

Self-employed individuals must:

Manage their own business expenses, including any contractor wages they pay
Calculate and pay quarterly estimated taxes
Cover federal, state, and self-employment taxes (Social Security and Medicare)

They don’t receive employee benefits like paid time off, insurance, or sick leave. On the flip side, they can earn unlimited income and enjoy the freedom of being their own boss.

Examples of independent contractors vs. self-employed individuals

Let’s skip the apples and fruit. Here are some real-world examples to clarify the difference:

Lawyer A is a semi-retired attorney who works occasionally on contract for law firms. → Independent contractor
Lawyer B is a founding partner of a firm with full-time clients and multiple associates. → Self-employed
Artist A accepts short-term freelance design commissions. → Independent contractor
Artist B runs a full-time art business, streams on Twitch, and ships prints from her online store. → Self-employed

4 things non-employees must have before working with you

When working with contractors or self-employed workers, it’s your responsibility to ensure:

A written contract
Required licenses (if applicable)
Proof of insurance
Proper IRS tax forms

These are essential whether the person is a 1099 contractor or otherwise self-employed.

1. A written contract

This defines the work, timeline, and payment terms—and protects both parties.

Include:

Scope of work and deliverables
Compensation amount and payment method
Non-disclosure or IP clauses if relevant
Length of engagement and termination terms
Reimbursement terms (software, mileage, tools, etc.)

Because contractors bring their own tools and cover their own costs, spell out if you’ll reimburse expenses. We also recommend having your contract reviewed by an employment lawyer—especially when hiring across borders.

At Plane, we have our clients’ contracts reviewed by both U.S. and local attorneys.

2. Required licenses

Licensing varies by role and location. Professions that may require licenses include:

Real estate
Cosmetology
Medicine
Law
Accounting
Education
Social work

Ask contractors to provide proof of any required licenses. In the U.S., you can verify credentials via your state’s licensing database.Find your state here.

3. Proof of insurance

Any self-employed workers who aren’t in an LLC have personal liability while working.

For that reason, always confirm whether they carry business insurance. A simple way to do this is to include an insurance requirement clause in your contract.

Common types include:

General liability insurance – Covers bodily injury, copyright claims, or slander
Professional liability insurance – Covers breaches of contract or client disputes
Cyber liability, commercial property, or auto insurance – Depends on the role

If your contractor gets hurt on the job and is uninsured, you may be liable in some states.

4. Tax forms

Start with a W-9 form (or W-8 BEN for international workers) before work begins.

Track total compensation paid throughout the year. In the U.S., issue one of the following at year-end:

Form 1099-NEC (for non-employee compensation)
Form 1099-MISC (for other income types)

Forms must be delivered by January 31 each year. Late or incorrect 1099s can lead to IRS penalties.

Plane automates W-8/W-9 collection and files 1099s for you.

Frequently asked questions

When working with contractors or self-employed workers, it’s your responsibility to ensure:

What is an independent contractor?

An independent contractor is a self-employed person you hire to deliver a specific result—not to follow day-to-day directions.

Under IRS rules, contractors:

Control how and when the work is done (behavioral control)
Set their own pay and use their own tools (financial control)
Have short-term, project-based agreements without benefits (relationship)

They also handle their own taxes and compliance.

What does “self-employed” mean?

If you earn money working for yourself instead of for an employer, you’re self-employed. You find clients, set rates, and pay your own taxes.

Common business types:

Sole proprietorship
Partnership
LLC

Self-employed workers don’t receive employee perks and must pay quarterly estimated taxes.

Are gig-economy drivers (like DoorDash or Uber) independent contractors?

Yes. Most app-based delivery and rideshare companies classify drivers as independent contractors.

They choose when to work, use their own vehicle, and are paid per job—meeting the IRS tests.

As self-employed individuals, they must track income and pay self-employment taxes.

What’s the difference between a contractor on a W-2 and a 1099 independent contractor?

A W-2 contractor is actually an employee on a short-term contract. The company withholds taxes, provides a W-2 form, and directs how the work is done.

A 1099 independent contractor controls their work, pays their own taxes, and receives a 1099-NEC form.

W-2 = employee.

1099 = contractor.

Simplify hiring non-employees through Plane

Working with non-employees may sound complicated, but it doesn’t have to be. We’ve got you covered — from drafting a locally compliant contract to automatically paying your non-employees on time.

Plane also automates W-8 BEN and W-9 requests and sends 1099-NEC forms to your contractors on time.

Try Plane today, and find out how we can help you manage your non-employee relationships more simply and painlessly.

Schedule a 30-minute demo with one of our experts to see how it works.

Legal Disclaimer: The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.