Self-Employed? Here’s How to Show Proof of Employment
It’s easy for full-time, contracted employees to show proof of employment. Usually all they need to do is ask the human resources department at their company.
Self-employed (freelancer, for example) may experience more difficulty providing proof of employment.
Verifying employment is important when applying for a home, car or personal loan.
In this article, we outline everything you need to know about proof of employment. This includes what it is, why you need it and how you can provide it.
Who Qualifies as a Self-Employed Worker?
Self-employed refers to independent contractor and sole proprietors who reports self-employment income.
If you are self-employed, you will work for yourself rather than for an employer.
According to the Internal Revenue Service (IRS), a self-employed person in the U.S. is someone who:
- Partakes in trade or business as a sole proprietor or an independent contractor
- Is part of a partnership involving a trade or business
- Is in business for themselves, including but not limited to part-time endeavors
Self-employed individuals may work as the following:
- Insurance agents
- Construction workers
What Is Proof of Employment?
Proof of employment is a form of documentation that hiring companies or financial institutions request to confirm an individual’s work history or current employment status.
There are many reasons why a third party may want to verify your employment, some of which include:
If you want to apply for a loan, lenders will want to see whether or not you will be able to pay back the funds based on your monthly income.
There is a good chance that they will want you to provide a proof of employment or income verification letter.
This information helps lenders understand how you manage your monthly payments and how a loan could impact your cash flow.
Once this is understood, lenders will be able to establish how the repayments will be scheduled in the loan terms.
Applying to Rent
Property owners who lease out their homes or apartments want to ensure that new tenants will be able to afford the rent.
With remote work becoming popular, landlords may also want to get an idea of how you will use the property.
For example, whether you will be on the property throughout the day or if you’ll be working elsewhere.
The proof of employment process helps the landlord get a better understanding of what kind of work you do and if you have a stable income to cover the rent.
Seeking Another Job
If you’re looking for a new job, it’s likely that salary negotiations will take your current or most recent pay records into consideration.
An employment verification letter is often used so that the new employer can verify the salary information that you provide.
It will also give a prospective employer a better understanding of past compensation.
17 states to date have salary bans in place.
This law prohibits an employer from asking for employee earnings history, as well as previous bonuses or benefits.
The goal of salary history bans is to end pay discrimination among women and minorities.
Credit Card Applications
Financial institutions weigh up many factors when they consider requests for credit cards, including the applicant’s current employment and salary.
A verification of employment shows credit companies that there is a good chance that you will be able to meet your debt obligations and payments in a timely manner.
Although your current salary doesn’t influence your FICO Credit Score, it does give creditors a better idea of how likely you are to afford your repayments.
How to Show Proof of Self-Employment
HR departments at large businesses have likely dealt with proof of employment requests in the past and may have a system in place to issue these documents.
However, if you’re self-employed you may need to produce these records yourself.
Now that you have a better idea of what proof of employment is and why it’s necessary, let’s take a closer look at some other ways that you can provide proof of employment.
Annual Tax Returns
Form 1099-NEC is a tax document used to report the income earned by independent contractors.
Companies are required to filing a copy of Form 1099-NEC with the IRS and to send a copy to the independent contractor.
This is so the IRS knows how much tax revenue to expect from self-employed workers.
It’s important to note that independent contractors who earned more than $600 from a business should receive a Form 1099-NEC.
Not only does the 1099-NEC serve as a record of an independent contractor’s salary verification, but it also gives them a form to attach their Form 1040 to.
Form 1099-NECs is also used for employment verification. Since it provides physical proof of self-employed income, the amount earned and, where it came from.
January 31st is the deadline for providing independent contractors with a copy of form 1099-NEC. It is also the deadline for providing employees with Form W-2.
Also known as the Wage and Tax Statement, the Form W-2 is distributed by employers to their formal staff at the end of each tax year.
A Pay stub is a written, itemized statement that documents how much a person earned during a specific pay period.
There are a few different ways that self-employed workers can receive and create pay stubs.
One option is to contact the HR department at the company you provided services for and ask them for a copy.
You can also produce your own pay stubs online with a company like Form Pros. We’ll go into more detail about our efficient document generator later in this article.
For self-employed workers, the following basic information is usually provided on a pay stub:
- The name of the company they provided services for, as well as its address
- If applicable, the independent contractor’s job title
- The number of hours worked during the pay period
- The total wages paid before the self-employed worker’s deductions
- Federal, state and local taxes withheld from the individual contractor’s gross earnings
- Other withholdings, including the employee’s share of insurance premiums
- Net pay
Pay stubs are useful because they can provide a proof of income and employment for self-employed workers.
This is because pay stubs show lenders or hiring companies how much you make and how regularly you get paid, as well as how much you earn after deductions.
Bank statements—also known as account statements—are documents that are typically sent by a financial institution to their account holders each month.
The statement is a summary of all the transactions that the account holder made during a particular period of time.
This statement contains bank account information such as account numbers, and a detailed list of the holder’s total income and expenses.
For lenders and financial institutions, a bank statement can provide proof that the individual can afford to meet their repayments.
Bank statements can sometimes be used to supplement a proof of employment document by proving income on a pay stub or reference letter.
Employment Verification Letter
An Employment verification letter is a document written by a current or past employer that confirms the employment status of a former or current employee.
Employment verification letters can be requested by potential employers, or various other governmental agencies and financial institutions.
Independent contractors can use employment verification letters to show when they worked for a particular company, what their duties were and what they were paid.
This letter can also be submitted with pay stubs, tax returns or bank statements as employment confirmation for independent contractors.
Making Proof of Employment Easy
Providing proof of employment is perhaps more important than you previously thought.
However, the admin and documentation that it requires may be something that you don’t have time for.
At Form Pros we understand how important your time is as an independent contractor—and how important your money is.
We’ve also made it easy for formally employed workers to create employment verification letters.
Why use our software?
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The best part of all? Form Pros costs a fraction of the price of hiring an accountant or payroll providers.
We also offer a subscription plan so that you can create unlimited documents at a lower cost.
Try our platform today and see how easy it is to create accurate, professional-looking documents with Form Pros.
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