Self-employment is becoming a more and more popular career choice. Many people are now rejecting traditional nine to five jobs in favor of going it alone, often as contractors or sole traders. Self-employment offers many potential benefits. You can set your own hours and work from home if you like, while being your own boss means that you won’t ever be told what to do again. Self-employment also brings tax advantages, as well as the opportunity to build up a retirement fund or an insurance policy for yourself—things that almost all employees are offered by their employer but which you will need to set up yourself if you’re self-employed. However, there are also some drawbacks to self-employment, not least in the amount of paperwork involved (you’ll have to file quarterly tax returns) and the risk of being personally liable for any debts incurred by your business.
The benefits of being self-employed
If you’re currently employed, you may think that self-employment offers very few advantages. After all, isn’t it just the same thing but with less security? Well, not exactly. While the two types of work may be very similar in terms of the type of work being done, there are significant differences when it comes to things like your work/life balance, the amount of you earn and the amount of taxes you pay, as well as your right to sick pay or maternity leave if you become ill or have a baby. As an employee, you are entitled to sick pay and/or maternity leave if you are employed full-time and meet certain conditions. If you are a contractor, you will not be eligible for either. Conversely, if you are self-employed, you will not be entitled to sick pay or maternity leave, but you will be eligible for certain benefits such as child tax credits or child benefit, which you would not receive if you are an employee.
Freedom and flexibility
Being your own boss and having the freedom to work from home and set your own hours can have real benefits for both you and your family. If you have children, you will be able to choose when you can work, meaning you can fit work around your family life. You will be able to make your self-employed business work for you around your family rather than having your family work around your business. Being self-employed also gives you the option to work in more than one industry, which is much more difficult to do if you are an employee, as you’ll have to negotiate a transfer between companies.
If you are a contractor, you will need to pay income tax on every contract you complete, but you will also be able to claim expenses such as travel or expense allowance against those earnings. As an employee, you are not entitled to claim any expenses against your earnings. Income tax One of the biggest benefits of being self-employed is the fact that you will be able to earn a lot more money than if you are an employee. Although the amount you can earn as a contractor will vary depending on what country you are based in, in many parts of the world you are entitled to a higher income as a contractor than you would be as an employee.
Protection for you and your family
Self-employed contractors have full control over their own rates of pay, which means you can negotiate a better rate of pay (and increase your take home pay) than you would as an employee. You can also decide when to take on a new contract—or turn one down if you don’t want to do it—which is not the case if you are an employee. As a contractor, you can also choose who you work for and what projects you want to accept, meaning you will have more protection if you work for a less reputable client or contractor.
Earning your own retirement fund
Many employers now offer their staff a retirement fund, which will be put towards your pension in your later years. If you are self-employed, you can set up an individual retirement plan (or an IRA), which will allow you to earn a retirement fund that you wouldn’t be able to earn as an employee.
How to protect yourself as a contractor
Contractors are often mistakenly thought of as employees who receive less pay. However, the truth is that contractors are a completely different type of worker who should be treated and paid differently. If you are a contractor, it is vital that you are treated as such and that your contractor status is respected. If you work for a contractor, it is important to know that you can withdraw from the project at any time and that you will be paid only for the hours you worked. You should also be given a contract that details all terms of the agreement between you and your client. Finally, you should have a method of tracking your hours so that you can accurately bill your clients.
The fact is that there are many benefits to being self-employed, even though being an employee may seem like a more secure option. However, many people start out self-employed with the intention of growing their business and becoming an employee at a future date, which requires the same skill set—just in the opposite direction.