Small Business Ideas for Teens: Start Earning Quickly

ByJulija A.
April 20,2022

Business landscapes have changed dramatically since the turn of the century, and the generational shift in mindsets is very hard to ignore. People now appreciate that there are many opportunities outside of the traditional nine-to-five. About two-thirds of teenagers now state that they have intentions to start a company in later life. There’s also an increasing number of budding teen entrepreneurs.

It’s the oldest cliche in the book, but if you’re good enough at something, you’re old enough. So, if you’re looking for teen business ideas, read on, as this guide will discuss the most inventive concepts along with the process of launching your venture.

Why Starting as a Young Entrepreneur Makes Sense

Finding ways to earn money as a teen isn’t anything new, and there are plenty of options ranging from delivering papers to flipping burgers. While they remain great options for many teenagers across the nation, there’s nothing wrong with wanting more. 

Building your own company will require a lot of work. Nevertheless, there are many reasons to consider starting a teenage business:

  • Break free from the financial restrictions of working for minimum wage, which is set by the Fair Labor Standards Act to be as low as $4.25 per hour. Many teen entrepreneurs earn more than their friends in traditional employment, while a small percentage can become millionaires before they’ve even graduated high school. 
  • Owning a business offers young entrepreneurs a chance to take control of their life. This means working on something they’re passionate about while also setting a work schedule around schoolwork and other commitments. Better still, there is no threat of being treated poorly by an employer.
  • It’s a chance to develop key business skills and gain experience. Even if the venture only lasts for a few years, the lessons learned are the perfect preparation for university, business school, or starting a business in later life. 
  • Starting a business teaches you to be resilient and look for logical solutions to an array of challenges. This can give you a head start at a time when many members of the younger generation lack face-to-face communication skills. 
  • As a teen, you have fewer financial commitments than adult entrepreneurs, which means you have time to help your business grow organically. This will instantly give any strong business concept a better chance of success because it’s a far less stressful environment to enter. You’ll also be able to invest your profits back into the firm.

The thought of running a business and learning how to monetize a hobby carries a lot of appeal for the immediate future while it could be a chance to build a lifelong career in the process. 

What Makes a Good Business To Start for Teens?

If you’ve weighed up the pros and cons of starting a business if you’re a teen and decided it’s the way to go, your next step would be to determine what you want from a venture. A quick look at some of the best teen entrepreneurs highlights the fact that success can take many forms. 

Ultimately, all business owners must find their own pathway. Still, some elements are common to top business ideas for kids and teenagers:

  • Small initial investment: Low-cost financial investment opportunities are essential because most teens have very limited capital and would struggle to seek loans outside of mom and dad. Finding a venture with zero or minimal outlay helps combat this problem.
  • Work from home: At-home business ideas for teens are highly popular because working from home takes the financial costs and logistical issues of finding commercial spaces out of the equation. It also buys you more time as there will be no pressure to start turning a profit right away. The fact you won’t need to commute is a plus, too.
  • A project you’re passionate about: A fun and engaging business idea that allows you to work on something you love. Aside from making it more enjoyable, your passion will shine through to impress future clients and customers.
  • A business idea that can make a difference: In general, younger generations care about sustainability and social responsibility. If these things matter to you, too, don’t be afraid to make them the core values of your business. If you care, audiences will too.
  • Flexibility: The venture will likely start as a side hustle that fits around your other commitments. There are times when you may need to focus on school and can only dedicate a small portion of time to the business. At other times, you may have greater availability. A venture that supports this is vital.

Ultimately, a good business venture for teenagers is one that’s enjoyable, versatile, and offers a fair shot at success. 

The Top 13 Small Business Ideas for Teens

Now that you know what to look for in small business ideas for teens, the big challenge is to find one that suits your personality, availability, and circumstances. Whether you’re 13 or 19, you’ll find the perfect business to start as a teenager by checking out the best options below.

1. Selling Art

If you like drawing and have been searching for answers on how to monetize your hobby, selling artwork is one of the best online business ideas for teens you should consider.

People buy artwork for gifts, home decor, and a range of other purposes. Over 2.5 million sellers use Etsy to earn money, and more than 60% of them are US-based. If they can do it, then so can you, especially if you have an eye for detail and the ability to create great products. Some of the most popular products are:

  • Stickers, notebooks, and stationery
  • Graphic designs, including personalized art
  • Paintings and prints for home decor

2. Tutoring

Everybody has a talent. If yours is something other people aspire to possess, there’s a good chance you could start a side business as a tutor. Tutoring for teens can mean anything from helping other students with their math homework to teaching people how to play an instrument. 

Speaking of musical instruments, did you know that guitar tutors can charge up to $60 per hour? Even if you command half of that fee, you’ll only need a small number of clients to earn more money than you’d ever hope to earn from working in the local 7-11. You could also look to utilize your skill through the following ideas:

  • Making use of your second language by teaching others online or offline
  • Helping older citizens learn how to use modern tech like Facetime
  • Teaching gamers how to master a particular title

The options are virtually endless, meaning you can choose a small side hustle or look for something that could become a legitimate long-term business model.

3. Photography Services

Many business ideas for teens encourage you to showcase your creativity, many of which can focus on selling a service rather than a product. Photography is a fantastic solution, although you’ll need to invest in a DSLR camera and accessories.

Still, each job is a chance to perfect your craft, refine your style, and determine which part of photography you’d like to enter long-term. It’ll also look great on college applications for either business school or photography school. Some of the most popular events that you may be able to cover are:

  • Sporting events - especially at college, amateur, or semi-pro levels
  • Family celebrations - graduations, communions, and birthday parties
  • Business photography - staff profile shots and photos for company sites

As you grow your portfolio, you may also gain the opportunity to work on-spec for local news or media outlets.

4. Blogger, Vlogger, or Podcaster Services

When thinking about the most successful teen entrepreneurs, especially well-known ones, the first thing that comes to mind is the world of digital media. For over a decade now, platforms like YouTube have provided content creators an outlet to make money through ads.

Teen blogging, vlogging, and podcasting can deliver huge returns. Anybody can upload to YouTube, Spotify, or their own websites. It’s the perfect way to make your voice heard and discuss the issues that matter most to you. Monetizing your hobby is possible via:

  • Sponsored content
  • Offering paid content to your most loyal fans
  • Merchandising

The internet has changed how we consume media, and authenticity is now king. If you can provide it, content creation is a low-cost and low-risk venture.

5. Utilizing Social Media 

If you’re anything like an average teenager, you’re already putting plenty of content online without realizing it. Likewise, you’re interacting with friends and online acquaintances through social media. If you’ve built a fan base, it could be your ticket to good earning potential. 

According to some estimations, 270 million TikTok views per year could earn you $100,000. Influencers can also make money through Instagram and other social media channels. Moreover, you don’t have to grow an audience of millions. If your fanbase is from a distinct niche and shows good engagement levels, you can make money through:

  • Getting paid to collaborate with brands
  • Affiliate marketing where you promote products your audience will love
  • Donations and gifts

Older generations may find it hard to believe that you can make money online simply by building an audience, but you can. Don’t be afraid to try.

6. Playing Music

Pop music has produced teen superstars for generations. Meanwhile, digital channels helped Justin Bieber get signed back in the day while the likes of Britney Spears, Iggy Azalea, and Billie Eilish all hit the big time as teens.

It’s not only pop music where teens and young adults can achieve success. And you don’t have to hit the mainstream for playing music to become your perfect teen job. Even as a newbie, a talented wedding singer can get paid a good fee. You can also earn money as a musician by:

  • Playing the local gig scene or getting festival slots
  • Selling your music on CDs
  • Playing at school graduations and other events

It’s a great way to turn a hobby into a money-making endeavor while starting a band is the perfect outlet to hang out with your pals - besides, who knows where the journey will end.

7. Car Washing

It’s likely that you’ve washed your mom or dad’s car for some extra money at least once in your childhood. As far as small, local business ideas for teens are concerned, it’s one of the easiest to get started. 

There are over 287 million vehicles in America, and thousands of them are within a three-mile radius of your home. The majority of drivers want to keep their car sparkling but don’t have the time. You can be the person to take care of this for them. Some of the benefits include:

  • The costs are minimal (sponge, water, shammy, car cleaning materials), while you can even find free marketing through social media and word of mouth. 
  • You can arrange to visit a client at a time that suits you or even look for business in the local area when you have a few hours to kill.
  • There is no need for a commercial setting, employees (although you could team up with a friend), or major business planning.

It may subsequently open the door to starting a valet service or opening an office-cleaning business. Cleaning services will always be needed, making it a very stable business option.

8. Pet Care

Approximately 68% of households in the US have at least one pet. So, if you start the business correctly, you won’t be short of customers.

The pet care business could mean grooming dogs and cutting their nails. Or it could mean pet-sitting for cats when a family is away on vacation. Dog walking is another popular option because you get to spend time with furry friends and stay active. Pet care businesses are a good choice because:

  • There is minimal outlay. In fact, it’s often completely free to get started.
  • Once you have your client base, it’s regular work that you can fit into your schedule.
  • If you don’t have a pet, this is the perfect backup.

You can start this business by working for family friends before moving up to local customers when you are confident.

9. Open a Franchise

Franchising may not seem like an accomplishable dream for a teen business. However, there are affordable franchises for under $10k. You may need to rely on your parents to help fund this option, but if you can commit yourself to the work, it can be profitable. 

Opening a franchise can introduce you to running a business without the need to build a brand and help you gain experience managing a small team. You can set opening times to suit your needs, even if it’s only during the summer vacation, and if things go well, it may be possible to open a second franchise or get a friend involved. 

10. Handyperson Servicing

OK, so you don’t have a plumbing license or the qualifications to work as an electrician. Still, there are plenty of jobs around the home that people need help with or don’t have time for. They can be some of the best teen business ideas of all.

Jobs for 15-year-olds can include fixing flat-pack furniture, handling basic landscaping duties, and cleaning a person’s property. You can even extend the work to completing daily errands for people with reduced mobility or a lack of time. There are many advantages of this type of work, such as:

  • Each job can be different - one day, you’re mowing a lawn, the next, you’re making a cupboard
  • There are early growth opportunities: For example, you can hire a friend to take on the jobs you can’t complete for a small cut
  • The earning potential is a lot higher than the traditional jobs teenagers take on, like store assistants.

If you feel that becoming a tradesperson is your future, this will be the perfect start before moving on to professional training in your desired field.

11. Online Retail

Starting an online store is one of the best online business ideas for teens because the potential exposure is relatively low. Thanks to the growth of the global dropshipping sector, you no longer have to possess stock. Instead, you can promote and sell products on your web store before the order fulfillment company delivers them. Alternatively, you could look at print-on-demand services to sell a host of products like:

  • Fashion (especially t-shirts) and accessories
  • Phone cases, mugs, and small household items
  • Greetings cards, photo books, and personal goods

Dipping your toes into the retail sector in this manner requires minimal spending, and it could unlock a lifetime of success in business.

12. Creating Products

When looking for cute business ideas, crafts for teens are an ideal outlet. Creating and selling products is an opportunity to learn how to run a business in a fun and engaging way. This type of venture will also make you learn about invoices and other business tools and documents. 

Take advantage of the fact that people want various beauty products or fashion items to revamp their personal appearance. Aside from outlets like Etsy, your products could be sold locally at:

  • A pop-up store that you run for a day or two
  • Market stalls, trade show events, and other outlets
  • By attending schools, businesses, or other relevant venues

There are many examples of young adults who created products from their homes to become major brands. You could be the next GymShark in your chosen niche.

13. Web Designing 

Small business ideas for teenagers don’t have to be that different from what adults provide. If you can design a great product or service, there will be opportunities to turn your talent into cash, regardless of your age. Web design services certainly fall into this category.

According to the latest small business statistics, there are more than 32.5 million businesses in the US alone, and virtually all of them need a website. Whether it’s starting a website from scratch or revamping an outdated one, you can help. Major marketing firms charge thousands, so this is an opportunity for you to win clients by charging less. Your services may include:

  • Designing responsive websites for WordPress and other popular CRMs
  • Creating websites from scratch using Dreamweaver or other software tools
  • Designing social media page layouts and integrations

It’s one of the best business ideas for students, especially those studying web design or marketing. Once you have your qualifications and portfolio, your earning potential will soar.

Teen Business Tips To Help You Get Started

Whichever business model you think might be best for you, it’s vital that you think it through and launch it correctly. Many of the digital-based options can start out as hobbies and won’t need business plans or registrations until you start earning a reasonable amount of money. However, you should still record all transactions.

Some of the best business ideas for teens do require you to register the business. You’ll probably launch a sole proprietorship, although you could need an LLC for ideas like a franchise. Other issues to consider are:

  • Whether you need an employer identification number to pay employees
  • Whether you need a small checking account to facilitate business transactions
  • Any insurance coverages you may require, especially public liability

If you’re unsure about how to start the company, speak to an advisor. They’ll point you in the right direction.

Wrapping Up

By now, you should be equipped with a range of businesses to start as a teenager and will have thought about the right solution for you as well as how to launch it. There will still be a lot of work ahead, from defining your target audience to finding the right bank for your business. Still, if you enter the process with a winning mindset, you’ll enjoy the ride and learn a lot.

Besides, it has to be more fun than working a job you hate for $4.25.

Frequently Asked Questions
What is the easiest business to start as a teenager?

The easiest jobs for teenagers to start focus on services you’ve probably provided in the past for some extra pocket money. Dog walking, cleaning cars, and running errands are all great examples.

How can a 13-year-old start a business?

When looking at how to start a business for teens, you’ll find that your state probably requires a parent to complete the registration. But the business is yours and will be governed by licenses and taxes like any other.

How can a teenager make money without a job?

Teenagers can make money in several ways. Making crafts to sell, teaching others to play music, and photography are some good examples. 

Can a teenager earn from TikTok?

Yes. In fact, the top creators are earning millions every year through advertising, affiliates, and commercial links. There is no limit regarding the age at which a creator can start earning money, although parental guidance may be needed for commercial endeavors.

Do you need your parents’ permission to start a business if you’re a teen?

Yes, usually. Minors can’t legally enter contracts without a parent’s permission. Likewise, nobody under 21 can get a business loan. So, while you may not require a parent’s help for daily operations, you'll need their support for legal matters.

About the author

Julia A. is a writer at SmallBizGenius.net. With experience in both finance and marketing industries, she enjoys staying up to date with the current economic affairs and writing opinion pieces on the state of small businesses in America. As an avid reader, she spends most of her time poring over history books, fantasy novels, and old classics. Tech, finance, and marketing are her passions, and she’s a frequent contributor at various small business blogs.

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Find the Best Franchise  First and foremost, you need to determine which franchise is right for you. Food franchises are the most common, but almost 300 industries offer franchise opportunities of some kind. Moreover, there are plenty of websites and trade events where you can find franchises for sale. Assuming you do go for a food outlet, some of the most popular options include a McDonald’s franchise, a Dunkin’ Donuts franchise, a Krispy Kreme franchise, or a Chick-fil-A franchise. Still, it’s important to conduct in-depth research to find the best franchise opportunities on the market. Be sure to consider the following: Costs: Knowing how much money you need to own a McDonald's franchise, for example, is critical when weighing your options. An existing McDonald’s franchise can cost upwards of $2 million.  Opportunities: There are plenty of franchise opportunities, but the key is to pick the one that best matches your skills and budget. Also, make sure you do your homework on the competition and learn about their proximity to your locations. Familiarity: You don’t have to work on a franchise you know and love, but it certainly helps. Passion and knowledge are important during those difficult early stages. Reputation: The company’s track record on social responsibility and its ability to provide quality products and services will affect your reputation.  There are other factors to consider, such as whether you plan to maintain a job alongside the franchise until launch or whether you’re partnering up with other owners.  2. Apply  When you’re done with your research and you’ve found the franchise that is the right fit for you, the company will want to make sure that you’re a good fit for them. Good networking skills and the ability to work collaboratively are useful qualities in these situations, which may explain why franchising is becoming increasingly popular among women entrepreneurs.    You’ll also need to go over the Franchise Disclosure Documents or FDDs. The documents outline your responsibilities, the relevant fees, and the rules and regulations you’ll need to adhere to. The franchisors are legally obligated to provide you with this 50+ page document before any contracts are signed. The FDDs typically include the following: The brand presence in your state and a three-year growth projection, The investment fees and ongoing costs  The support that will be offered to the franchisee Some franchisors may not offer business performance details and information on losses or unit closures. But you can always turn to third parties and the company’s public filings for more info. 3. Attend a Discovery Day Discovery days are an important feature that gives franchisors and franchisees an opportunity to connect and learn more about each other. It is, therefore, considered a key step towards setting the foundation for a long and successful working relationship. It’s a chance for prospective business owners to seek clarity to any questions they may have. Before this event, you should have already completed the necessary research by reading the International Franchise Association guidelines. As a franchisee, you can expect a discovery day to include: A combination of group presentations, one-on-one meetings, and interviews Visits to existing franchise locations The opportunity to meet important people who will guide you to success It should be noted that some franchisors only handle the discovery day via digital channels due to the pandemic.  4. Fund the Venture Studies show that the costs of owning a franchise are around $250,000 for more than half of all franchise opportunities. Many prospective franchise owners will struggle to find that much capital. Thankfully, there is a range of funding options available. Of course, you can make life a little easier by finding the cheapest franchises to start things off or by seeking external funding. Experts suggest liquid capital should account for around 30% of the total costs. Here are a few avenues to explore: Securing bank loans with bad credit isn’t impossible. Still, qualifying for a franchise loan when you have poor credit history will add a few steps to the process.SBA loans are a popular option among prospective franchisees. A Rollover for Business Startups or a ROBS agreement that leverages success from your 401K retirement account.  Private investments from friends and family, which could include crowdfunding; however, it should be noted that you are unlikely to gain investments from strangers for a franchise. Consider a partnership with another prospective franchise manager. While it does reduce your potential financial exposure, it does add some complexities. It also means you need to split the profits. The harsh reality is that you cannot own a franchise with no money. Once you’ve researched how much buying a franchise will cost and approached lenders with a business plan, you have a fair shot at success. 5. Invest in Yourself Studies show that almost half of all franchise owners have a bachelor’s degree. This should come as no surprise, not least because the biggest organizations want every franchise to represent the company in style. Therefore, it’s vital that you understand the qualification requirements. Your franchisor will typically run a host of training services for you and your team. This is to ensure that you continue to manage the company within the framework of the parent company to ensure consistency with other franchises across the nation. Additional forms of self-investment that you may wish to consider are: Advanced research into the history of the company, Body language and communication courses, Your personal grooming to make appearances count, Developing a positive mindset and self-confidence. You are only one cog in the machine, but you must not forget that you set the tone. When you lead by example, it will filter down throughout the business to deliver stunning results. 6. Register Your Business By now, you may have already registered the company. If not, you will need to do so quickly so that you can commence with business operations. The franchise must still be incorporated like any other business, which means providing your Employer Identification Number and other details.  One of the biggest dilemmas revolves around finding the right type of structure for your company.  An LLC keeps your business as a separate entity, which reduces your liability and eliminates other legal requirements, especially when compared to corporations. An S-corp tax election offers tax advantages but reduces your flexibility.  In most cases, an LLC is the way to go. Bear in mind that you’ll also need to open a separate bank account to keep your franchise finances separate from your personal ones. 7. Find the Ideal Location Location is one of the most important aspects when running a franchise, especially when we’re talking about food and retail brands. Finding a commercial unit that’s affordable and easily accessible to consumers is vital. Here, it’s important to think about money and your investment capabilities. Leasing is likely to be the best option for your franchise business, although a commercial real estate loan may enable you to purchase property. While the right location is the priority, you must also consider: The square footage of the internal areas and whether major structural updates or refits are required Accessibility to the front door and the parking lot Safety for all the areas as well as employees and guests Monthly rental costs and the minimum contract duration As well as finding the right location, you’ll need to design the layout of your franchise or store. The good news is that everything from the furniture to the equipment and POS terminals can be provided by the franchisor. 8. Hire the Perfect Team Always seek advice and guidance from senior franchise managers and the parent company. It’s equally important to employ the right people at your franchise store. It’s likely that your franchise will be open for long hours, especially if you want to own a fast-food franchise. Employee engagement stats show that the current rate is just 34%. As such, finding the right workers and providing the tools to help them thrive can make a huge difference to your venture. For a fast-food restaurant, you’ll need to hire: Chefs  Waiters Cleaners  Admins Supervisors Assembling the best team is one of the most important challenges you’ll face. But succeeding in this will give you peace of mind and enable you to establish a better work-life balance. 9. Prepare Your Marketing Tools One of the great things about franchising is that your franchisor will already have logos, slogans, color schemes, posters, and deals in place. Moreover, they may provide you with a template website for the local franchise. Franchising stats show that seven of the top 10 franchises are in the food industry. If you’re in the same sector, marketing items can also cover menus and images of food items. Over four in every five franchises focus on regional audiences. Every marketing plan should be geared towards conversions and revenue. Some of the key features to remember are: Local SEO, social media marketing, and content marketing Affiliate marketing and the power of recommendation Flyering and using posters in prominent areas Perhaps most importantly, you need your shop signage to stand out. Again, this is something that giants like McDonald’s and Dunkin’ Donuts will help with.  10. Open and Operate Once you’ve completed the steps above, you should be ready to launch the franchise. Your franchisor will provide the promotional tools for you to organize an opening event at the right time. Of course, seeking local press coverage can make all the difference. As long as you follow the successful launch with consistent quality in daily operations while keeping one eye on future opportunities, your franchise will have every chance of success.  Final Word  Our guide on buying a franchise and the 10 steps we’ve outlined should give you a far better understanding of whether this is the right move for your career. The potential profits are impressive, but only if you have the right skills and can find the passion for essentially running an established branch for a parent company. The fact that over 780,000 business owners are thriving through this model underlines its potential. And amid the current economic turmoil on the global stage, there has never been a better time to explore this lucrative option.
By Vladana Donevski · May 10,2022
If you were just to observe an office where an independent contractor and an employee were working side by side, you’d be hard-pushed to see any difference between them. Both would be typing at computers, going to meetings, and using the bathroom.  Even so, they’re not the same. There are both practical and legal differences between them.  In this post, we ask: Independent contractor vs. employee – what’s the difference? We then explore the pros and cons of each and some of the penalties you might face if you classify workers incorrectly.  Employee vs. Independent Contractor Employees are defined as workers on the company’s payroll who receive regular wages and benefits in exchange for loyalty to the organization. An employee, for instance, can’t work for both Citigroup and JPMorgan at the same time. They must also adhere to company guidelines, including all of the stipulations in the employee handbook.  Contractors, on the other hand, are independent workers who get paid for completing projects. They don’t receive any perks or benefits (besides their pay), and they are not on the company payroll. Contractors usually run their own legal business entities, such as limited liability companies. Organizations buy their services “off the shelf,” as and when they need them. If the contracting company sees fit, it can simply cancel them without having to offer any redundancy pay or advanced notice. Contractors sign contracts with businesses hiring them. These set out what the company expects, the deliverables, and how long the work will go on for. Contracts can be short-term, lasting just a few weeks, long-term, or indefinite, depending on the underlying brand’s business model. Businesses often hire contract workers because it’s cheaper than taking on full-time employees. For instance, when companies hire gig workers, they don’t have to pay health insurance, vacation time, 401(k) contributions, or any other benefits. They just pay the fee that the contractor asks for.  Independent Contractor vs. Employee Checklist In this section, we explore the differences between employees and contractors. Pay and Taxes Companies pay employees and contractors differently. As discussed, employees are on the company payroll and typically receive either a fixed monthly salary or a figure determined by their hourly rate of pay. Contractors, on the other hand, aren’t on businesses’ payroll. Instead, companies pay them in a similar way to how they might pay a vendor by making a bank transfer or sending them a check in the post.  There are also differences when it comes to taxes. Firms tax employees on behalf of the IRS by automatically deducting anything they owe from their paychecks. They then provide breakdowns of taxes paid (such as Social Security, Medicare, and federal income tax) on the pay stubs they hand out to employees at the end of the month.  Sole proprietors and partners, on the other hand, must pay contractor taxes independently, according to federal law. Companies they work for don’t pay or hold any taxes on their behalf. As such, gig workers are entirely responsible for paying their own taxes (though, in most cases, they hire accountants to do it for them).  Benefits are another point of departure. Employees typically receive financial and nonfinancial perks as part of their pay packets. Employers, for instance, might make contributions to their health savings accounts, health reimbursement accounts, or flexible spending accounts or offer them free gym memberships, company cars, and so on.  By contrast, contractors don’t receive anything other than their agreed-upon wage. If they want any of the above perks, they must buy them themselves.  Reasons for Hiring Companies hire employees and contractors for different reasons. The main motivation for employing a worker is to gain their loyalty and leverage their skills daily, long-term. The reason for this is simple economics: It’s expensive for firms to continuously go to the market and hire the skills they need on a job-by-job basis, so bringing someone in-house cuts costs.  On the other hand, firms typically hire contractors when they require their niche expertise for a particular project. For instance, it’s common for contractors to work for firms for a couple of months and then leave once they obtain certain milestones.  Furthermore, contractors have less loyalty toward the companies they work for because they’re always on the lookout for the most lucrative projects.  Employment Flexibility Employees have a single employer (unless they have a side gig) and are subject to their employer’s rules. Contractors, on the other hand, work for many firms, either concurrently or sequentially throughout the year, depending on the type of work they do.  Of course, there are independent contractor pros and cons associated with this. On the plus side, they can take time off work whenever they like. However, if they do, they won’t get paid, which is a negative compared to a “standard” employee. Training As you might expect, there are also significant differences in training and onboarding between independent contractors and employees. Contractors, for instance, don’t get much (if any) onboarding at all. That’s because they’re not joining the company long-term. Employees, on the other hand, may receive long on-ramps that introduce them to every aspect of the business, including the culture, hoping that they will stick around for the long haul. Training is also different. Companies expect independent contractors to arrive with fully-fledged skills right off the bat, whereas they may view employees as more of a work in progress, offering professional development as a job perk.  Autonomy Lastly, there are significant differences between the level of autonomy afforded by regular employment and self-employment contracts.  Employees must perform work according to the instructions of the employer. For contractors, it’s different. Firms assign them projects, but it’s entirely up to them whether they take them on or not. Moreover, companies tend to exert less control over where and how the project is completed. Contractors, for instance, don’t have to turn up at the office at set hours or dedicate certain times of day to particular tasks. Classifying Workers The IRS looks for specific factors that indicate whether someone working for you is really an employee. Therefore, it’s critical to get the distinction right. If you don’t, the IRS or workers may take legal action against you. Here are the questions that’ll point you in the right direction: Where does the worker do most of their work? If workers spend most of their time in company offices, then the IRS will likely classify them as de facto employees. By contrast, if they work remotely, they’re more likely to be independent contractors.  When does the worker work? Employees have to work set hours throughout the week, according to a contract, whereas contractors don’t. If you demand that contractors work during set periods, then you may be treating them more like employees in the eyes of the IRS. Is the worker doing full-time, continual work? A worker may also be an employee if they’re doing full-time, continual work for you. Remember, most contractors work for their business clients for a limited time and then move on. If they remain for many years, the IRS may interpret that as a sign that they are actually employees.  Is the worker paid monthly? Another sign that a worker is an employee is if you pay them a set amount monthly instead of on a “per project” basis. The IRS may view such payments as being suspiciously similar to a regular salary.  Does the company pay for travel? Companies will usually pay for employee travel costs because they can deduct them from their expenses. Independent contractors, on the other hand, are usually required to pay for their own transport. If companies pay for contractor transport, the IRS might consider this evidence they are actually de facto employees.  In summary, knowing the right classification for your workers is essential. If you misclassify, you may have to pay both back taxes and fines to the IRS. The size of the bill will correspond to the number of Form W-2s that you failed to file because you didn’t correctly classify an independent contractor as an employee.  Furthermore, if the IRS believes you deliberately and persistently misclassified workers, you may face criminal penalties. These could include fines, jail time, and damages litigation by workers.  Employee Pros and Cons Let’s take a look at some of the positives and negatives associated with hiring an employee.  Pros of Hiring Employees Part of a team and often want to go the extra mile to advance their careers A sense of loyalty and duty toward the firm Able to perform routine tasks over long periods Can take on extra work when the need arises Cons of Hiring Employees Training and professional development can be expensive Salaries must be paid like clockwork, regardless of the business’s cash flow position Perks and other employee-related expenses can add to the cost of hiring Recruitment and interview processes can take a long time Pros and Cons of Independent Contractors Now, let’s take a look at some of the pros and cons of independent contractors:  Pros of Hiring Independent Contractors Save money overall because you’re not committed to paying any benefits or salary Easily hire the right person for the task without the need for additional training Gain greater flexibility; if a contractor isn’t a good match, there’s no need to hire them again The contractor takes care of all the permits and licenses they need; it’s not the business owner’s responsibility Cons of Hiring Independent Contractors Some loss of control over how they perform tasks Difficulty closely monitoring their work and assessing the quality of their contributions Lack of company loyalty Independent contractors own the copyrights to their work unless you write up an agreement stating otherwise Hired short-term and may require administratively costly re-hiring in the future Conclusion Essentially, the difference between an independent contractor and an employee comes down to the relationship of the worker to the firm hiring them. If they receive regular wages, follow instructions of senior managers, and work at the employer’s place of business, then they are probably an employee. However, if they work relatively independently, don’t receive benefits from the employer, and operate remotely, then they are more likely to be a contractor.  Correctly classifying workers is essential. Failing to do so properly can result in having to pay hefty back taxes and fines to the IRS. Furthermore, wrongly classified employees may litigate against you. 
By Julija A. · April 20,2022

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