There’s a lot of confusion and misconception when it comes to business identities. More often than not, people who are business owners identify themselves as self-employed, and those who are self-employed go around telling people that they own a business. And when one is a small business owner, the confusion always seems to escalate.
And while there’s no major harm in confusing the two, not recognizing the disparity between them can affect the expenses you incur, your tax filing process, and the liabilities that you might face. Knowing what you are can help you not only in managing your work systematically, but can also save you ample time and legalities.
In this article, we will explore the major differential factors through which you can clearly recognize which of the two you identify as.
Business Owners Generate Employment, Self-Employed Don’t
Self-employed are those individuals who are the sole proprietor of a business, an independent contractor or are in a business partnership. Being a sole proprietor means that they are the sole business owner without any partnership or a legal entity. This would mean that all the financial expenses—including any debt—would be borne by them and them alone.
Similarly, being an independent contractor would mean that although you are working for a business entity, you won’t be considered as their employee. For instance, freelance writers, consultants, lawyers, plumbers, etc are all examples of a self-employed individual.
Business owners, on the other hand, are people who hire employees and contractors to do their work, thereby creating employment not only for themselves but also for others. They are responsible for paying the employees who are working for them, in addition to overseeing their taxes. Many individuals start as self-employed entrepreneurs but soon grow into small businesses.
Small business owners are generally engaged in a Limited Liability Company (LLC). This is a hybrid of a partnership and sole proprietorship which allows its members to share the liability of company debts. The owners of LLC are taxed on their personal income tax returns and are liberated from paying the double corporate taxation.
Profit vs Income
Generating income for oneself is the first and foremost reason for an individual to become self-employed. Their goal is to earn enough money to sustain themselves and in some cases their families. When you are a business owner, however, your driving force is certainly going to be profits and cash flow. A business relies on profits to grow and prosper, whereas the self-employed need only sufficient income to carry on.
Unlike with a Business owner, the work depends on the presence of the Self-Employed
Being self employed means bearing a lot of challenges and responsibilities. their talents and skill-set what define their work, and without it, their productivity and income would most definitely cease. they might train or take assistance from others, but the output in their absence would be far off the expected margin.
Although the business person is directly involved in the working process, the create strategies and processes that would run irrespective of presence so that their absence wouldn’t incur any great loss. there are employees ad descendants who can carry on the work on their behalf, and while the company may suffer through a few inconveniences, the overall working process wouldn’t be greatly hindered.
Benefits and Perks are more in case of a Business Owner
Being self-employed means letting go of the benefits like paid leaves, vacation days, retirement plans, or other medical and insurance perks. Once you stop working, your income would also come to a halt. Furthermore, the burden of taxes and liabilities would reside on your shoulders and you wouldn’t be able to rely on others to share your workload.
Being a business owner would free you of these drawbacks; you can share your liabilities with your partners, revel in the employer benefits, and fall back on other trained individuals to generate revenue in case you decide to take a vacation. Additionally, being your own boss would give you the freedom to choose your own team and strategies, and delegate tasks according to methods that you adhere to.
But self employed has more Liabilities
As a self-employed individual, you have the freedom to work according to your own methods and have greater control over your executive decisions and working hours. Additionally, not only do you enjoy the low startup costs and open-ended career progression, but also the self-employment tax deduction. This means that you don’t have to worry about the complicated tax procedures that a business owner has to bear.
Moreover, a business owner has to devise complex business environments and establish a setup that might be hard to manage and run. There are often complex legal obligations and the fact that you are responsible for your employees’ payroll and other compensation benefits can itself be an overwhelming responsibility.
Although both self-employed and business owners work to earn money, they have their distinguished idiosyncrasies that should be paid heed to. No matter which one you are, there will always be certain benefits and challenges that will accompany you in the way—all you need to do is recognize who you are and set your plans accordingly.