Trends in Occupations - Independent Contractors: Can We Make A Living?

The chart shows the median annual earnings¹⁵ for both full-time independent contractors and full-time traditional workers for February 1999. The chart also shows this comparison by gender and race. Overall, independent contractors earn more than traditional workers. They tend to be highly educated and skilled — else they would not survive. Despite this, women and blacks tend to earn more in the traditional workforce than they do as independent contractors. This could be because women and blacks tend to put in fewer hours in this type of work arrangement. They may also have less experience in their field, or be employed in fields that traditionally pay less.

Most independent contractors may earn more than traditional workers, but they also incur expenses that traditional workers do not. These expenses include work-related expenditures for equipment, transportation, and training; self-employment taxes¹⁶; federal and state withholding taxes; and health insurance.

The next table shows the percentage of independent contractors and traditional employees that have health care coverage. It also shows the percentage of workers that purchased coverage on their own.

Independent Contractor vs. Traditional Employee: Health Care Coverage

With health insurance coverage (%)
	Total	Through current employer	Purchased on own17	Through spouse or other family member	Other
Independent Contractor	73.3	1.8	33.0	26.7	11.8
Men	71.6	1.8	37.2	20.4	12.2
Women	76.8	1.9	24.8	39.1	11.0
Full-time	72.3	2.1	38.4	23.0	8.8
Part-time	76.4	0.9	18.2	37.4	19.9
Traditional Employee	82.9	61.1	21.1	3	0.7
Men	82.2	66.3	14.8	3	1.1
Women	83.7	55.4	28.0	3	0.3
Full-time	84.8	70.6	13.5	3	0.7
Part-time	74.3	16.9	56.7	3	0.7

Independent contractors are more likely than traditional employees to purchase their own health insurance. For this reason, clearly, fewer have health insurance coverage. Part-time independents have higher health insurance coverage — probably because they are covered by their spouses; many part-time independents also have coverage through full-time traditional jobs.

Although income tends to be higher for independent contractors, added expenses, such as business expenses, taxes, and health care coverage may offset the higher pay. Their disposable income may not be as high as it may appear on the surface. Independence has a cost.

Source: DiNatale, Marisa. "Characteristics and preferences for alternative work arrangements, 1999." Monthly Labor Review, March 2001.