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Tom: If we are considering contract work, what should we keep in mind?

Mellody: Well tom, the first thing to remember is that you have rights. The tax code does not permit treating common-law employees as independent contractors, so if your employer determines when, where and how you work, sets employee hours, and can fire you, you should not be considered a contractor. Many employers will try to require workers to sign a contract saying that they are indeed independent contractors. However, a contract cannot make an employee an independent contractor, since contractual terms cannot be enforced if they are illegal.

Tom: What about financial considerations for freelance work?

Mellody: A very important question. There are three big considerations for freelance workers when it comes to your money. The first is taxes. Regardless of whether you work for yourself full-time, or you are just picking up some extra work on the side, you need to deduct taxes four times a year, setting enough aside to cover self–employment tax for social security and medicare, as well as federal income tax, and state taxes if necessary. The second thing to remember is healthcare coverage.

If you are covered by a spouse, or you have coverage through your full-time job, you need not worry. But if you are trying to make the transition to freelancing full-time, you have to consider the cost of healthcare, because it is something you must have for your physical health and your financial health. Finally, you have to keep saving. Emergency funds and retirement savings are even more important when you are working for yourself, because you won’t always have a guaranteed cash flow.

Tom: Thanks for joining us, Mellody. This is a really important topic for everyone.

Mellody: It really is. Have a great week, Tom.

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Money Mondays: How To Win In The Freelance Economy  was originally published on

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