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Is Self-Employment Better or Being Employed?
By Matthew King
.The Short Answer is It Depends On You. The Long Answer – Let’s ask a few questions and weight the difference between being self employed or being employed.
Let’s get the questions out of the way first:
Are you self-motivated and need little to no supervision?
Do you operate well with a team or alone?
Do you need structure or can you set your own goals and meet deadlines?
Are you the type to go out of your comfort zone or stay in it?
If you reach 100 prospects and they say no, will you give up or continue until they end up being yes?
Do you have funding incase money runs dry for a few months?
Weighing the Difference – To be employed or not!
So let’s talk about all the positives of being self-employed.
One of the biggest positives to being a self-employed individual is that you are the boss. You decided your day, when you’ll show up for work, when you leave, when you have launch or if you even work at all that day, if you pass on a customer’s call or jump on the phone the minute they call you. There is something to be said about this freedom as its awesome but if you can’t motivate yourself. Being your own boss simply won’t work. This is why I asked a few questions before weighing the differences. Depending on your answer, you’ll know rather you will rise or fall being your own boss.
Another factor is that you’ll usually enjoy your work more as you’re the one deciding the work. Generally speaking you’ll earn more money than being employed after you get a steady income flowing in. You’ll be allowed to deduct from your taxes certain business expenses such as office paper, phone bill, and a few other things. Depending on if you become a self-employed home worker, you’ll also spend less money on gas to get to work, time to get to work, and you can work anywhere (while on vacation, while at mom’s, watching the kids, etc). As a self-employed freelancer you’re job can be ever evolving as different clients have different needs you’ll adapt, learn, update your skills or hone current ones.
If you work self-employed and by yourself there will be no “workplace drama” unless of course you are having internal struggles! On a very positive note, no more sick day excuses or required note! Simply put a message that you’re closed and that’s that! You’re work space is also not limited to the confines of a cubicle unless you like to work in a cubicle. You can use a standing desk, no desk, an outside office or whatever your heart desires to work in.
Now, since we talked about positives, let’s throw in some negatives for being a self-employed boss!
Since you’re the boss, you choose your day. However, people without motivation will often choose to lay in bed rather than get up every morning and prospect for clients everyday, or will extend their sick day just a bit longer. Sometimes, people need that structure and accountability to stay motivated and make sales. If you feel that you aren’t very motivated then don’t become self-employed. If you feel that you might give up because you just seem to be getting too many “No’s” then being self-employed may not be for you.
Another major factor is health care cost and “employee benefits” are out of pocket costs. You’re also completely responsible for reporting your tax return correctly.
So let’s bring to the table some positives about being an employee. You have a set time for work, vacations, off-time, sick days, and a schedule. This makes planning events with the family much easier. Most employees get a benefits package that includes health care along with their taxes being completely taken care of. The biggest bonus is as long as you’re a salary employee you can count on your pay check being there and the money is stable. Normally, there isn’t a period where the money could go dry. Your manager is holding you accountable so it’s harder to just be “lazy” because you can.
Only after weighing all your options should you make the decision to be an employee or to be self-employed. Again neither one is for everyone and this post doesn’t have all the answers. There are a few questions you need to ask yourself to know what you’re really cut out to be.
Someone who is self-employed generally works for themselves as a business owner, freelancer, or as an independent contractor for another company. Earnings are usually directly from the business or freelancing, instead of salary or commission-based reimbursement.
Self-Employed Definition
The Internal Revenue Service defines an individual as being self-employed, for tax purposes, as:
Employment Status
When you are employed by a company you are considered an employee. Employees are on the company payroll, and the employer withholds federal and state taxes, Social Security, and Medicare.
Employees are provided with unemployment and workers’ compensation insurance. Employees may be offered benefit packages that include things like paid sick leave, vacation, health insurance, or 401(k) or other retirement plan participation.
Self-Employment Taxes
If you’re self-employed you are responsible for paying your own taxes to the Internal Revenue Service (IRS) and to your state tax department. Even if you do not owe any income tax, you must complete Form 1040 and Schedule SE to pay self-employment Social Security tax.
In addition to income taxes, self-employed workers must also pay Social Security and Medicare taxes in the form of SECA (Self-Employment Contributions Act).
Independent contractors are not entitled to employee benefits, even those mandated by law like unemployment and worker’s compensation, because they are not employees of a company. Unlike a typical employee, independent contractors work less regularly. They work as and when required, and usually bill by the hour or per project, depending on the terms of their contracts.
From a tax perspective, employing regular employees costs significantly more for employers than independent contractors because they are required to pay Social Security, Medicare, State and unemployment taxes in addition to consistent, salary or wage-based work.
Health Insurance and Other Benefits
However, self-employed individuals and independent contractors may be able to purchase health insurance and other benefits for you through the Affordable Health Care Act (Obamacare) or through organizations like the Chamber of Commerce or others groups that provide benefits for self-employed workers and small business.
If you have self-employment income, then you can take a deduction for health insurance expenses incurred for yourself, your spouse, and your dependents. Other self-employed tax deductions include home office costs, internet, phone, and fax expenses, meals, business travel and car expenses, interest on business loans, education, IRA contributions, and even some entertainment.
Pros and Cons of Self-Employment
While there are many positives to being self-employed such as choosing your own hours (full or part time), shortening or completely avoiding your commute, focusing on career objectives that matter most to you, being able to work remotely and tax deductions, one of the downfalls is that benefits usually included in salaried work must be paid for out-of-pocket.
Furthermore, self-employed workers are responsible for both losses and profits. There are no paid holidays or sick pay, and the earning schedule may be less in the short term when you are starting out. With no boss or supervisor to manage you, it takes great focus and motivation to be self-employed. In many circumstances, hours are long and working on your own can be lonely.
Health insurance must be contracted for by the individual, there are no paid vacations or sick days, and retirement must be planned for.
Becoming Self Employed
For those interested in making the move to becoming self-employed, Small Business: Canada Expert Susan Ward has great advice on transitioning from being an employee to being self -employed.
