Definition of self-employment

Self-employment is the simplest form of business organisation, comprising in its most basic form a one-person firm without an employer or employees.

Generally, self-employment is both a distinct legal construct and a separate employment category under tax law. Thus, self-employed people have to declare their incomes to the tax authorities themselves and are required to file their taxes on separate tax forms from employees.

Unlike employees, they are eligible for business related deductions and in many jurisdictions face different tax rates and social security eligibility requirements.

In law, the self-employed are governed by the notion of a contract for services rather than a contract of service.  A contract for services means that self-employed are subject to the law of contracts regarding delivery of agreed services to clients, for example, a carpenter agrees to make a table for a client within an agreed time to an agreed standard and at an agreed price.  A contract of service applies to employees who are subject to the law of contracts to deliver an agreed amount of service to an employer, for example, a shop assistant agrees to work 35 hours per week at particular times to discharge an agreed range of duties in the shop.

This notion helps tax authorities determine when workers are “genuinely” self-employed or are artificially labelled, as a result, by employers wishing to minimize their tax liabilities.

Some self-employed people employ others, either in unincorporated sole proprietorships or partnerships. Once a self-employee incorporates their business, they technically become employees of their corporation; they are taxed accordingly.

Self-employment is frequently regarded as a form of entrepreneurship. All entrepreneurs are self-employed, although perhaps not all self-employed are entrepreneurs.

About one-tenth of the workforce in most western economies is self-employed. About twice as many men than women are self-employed.  On average, the self-employed are older than employees, retire later, and save and accumulate more wealth over their lifetimes.

Evidence from a diverse array of countries reveals that the self-employed express greater satisfaction with their jobs and lives than employees do.  Also, they also appear to be more optimistic than the general population.

They are also about twice as likely to have self-employed parents as employees are, suggesting a strong intergenerational component to self-employment. [1]