Being employed vs self-employed offers unique perks and drawbacks, and vice versa. So, it can be difficult to choose between them. There are some key differences when it comes to factors like earning potential, work/life balance, and flexibility. When you have a good understanding of each, you’ll be able to decide more easily.
In this post, we’ll take a closer look at self-employment and employment. Then, we’ll compare five key factors to help you determine which option is best for you. Let’s get started!
Self-Employment vs Employment
Self-employment usually involves working as a freelancer or starting your own business. Your income is generated through the profit you make. You might run an e-commerce store or offer a service like web design or copywriting:
However, you can also be hired on a contractual basis which generates a more stable revenue. For example, you might be given a year-long contract with a particular brand.
On the other hand, if you opt for employment, you’ll be hired by a company to carry out certain tasks outlined in your job description. In exchange for your work, you’ll receive an annual salary. Often, you’ll be able to access additional perks like paid time off, sick days, health insurance, and more:
In short, self-employment makes you the boss of your own business. You’ll have greater financial responsibility and you’ll need to handle executive business decisions.
However, an employee rarely has to concern themselves with these sorts of tasks. Instead, you’ll be paid a set rate as long as you fulfill your job requirements.
Self-Employment vs Employment: 5 Factors Compared
Now that you know a bit more about self-employment vs employment, let’s take a look at five key differences between the two.
1. Work/Life Balance
One of the first differences between self-employment and employment is work/life balance. If you’re self-employed, you can work the hours you want. But, since you’re solely responsible for running your business, you may end up spending more time on business management tasks.
For example, you’ll likely need to handle insurance and deal with additional tax paperwork. Unless you hire an accountant, you’ll also spend a significant amount of time managing invoices, payments, and more:
With these extra considerations, you might have to work more than a 40-hour work week, and suffer a greater deal of stress. This is especially true when you’re first starting out. As such, it’s really important to take steps to avoid burnout as a freelancer.
As an employee, you may not have as much freedom, but hopefully you’ll enjoy a position where there is less need to work overtime. What’s more, unlike self-employed people, you’ll likely enjoy some mandatory federal holidays, when you won’t be pressured to work (because no one else at your company is).
Of course, as you advance in your career and you take on roles with additional responsibilities, this can change. For example, if you become a ‘director’ of your department, you may be expected to travel for important meetings and attend conferences outside regular hours.
2. Schedule
Your schedule will also look different depending on whether you’re employed vs self-employed. First of all, when you’re self-employed, you run your business, so you can choose when to work.
You might prefer working heavier days at the start of the week and easing off towards the end. Alternatively, you might take extra days off. Plus, you can more freely take breaks to accommodate your personal life.
However, as an employee, your schedule will be a lot more rigid. Typically, you’ll work set hours dictated by your employer. While this often revolves around the 9-5 work day, there are also plenty of opportunities to work from home or enjoy flexible working hours:
The 9-5 schedule can implement structure and consistency in your life. But, it can also be limiting. What’s more, you might have to work hours when you’re least productive. For example, if you’re a night owl, starting work early in the morning might not enable you to get your best work done.
Ultimately, it’s important to consider your personal work style. If you know you thrive with a clear routine and management, employment might be best. Meanwhile, if you’re a self-starter who likes to be in control, you may prefer self-employment.
3. Job Security
Since you’ll only earn an income when you make a profit, one of the scariest things about being self-employed is the lack of job security. As a freelancer, you may advertise your services on marketplaces like Fiverr or Upwork:
However, these platforms can be highly competitive, and there may be times when business is slow. In which case, you might have to find other ways to support yourself financially. Plus, even when business is booming, it can be difficult to handle negotiations and clients often pay late.
On the other hand, you can find greater job security as an employee. If you’re hired by a company, you’re guaranteed work. Therefore, your income will be more stable.
However, you might feel you have little control over your future. Hiring and layoff decisions are completely out of your hands. Furthermore, if business slows or you’re hit by economic changes, you can lose your job when you least expect it:
That’s why plenty of employers offer severance packages and other unemployment benefits. Typically, this protects your pay for a few months.
4. Earning Potential
You might also want to consider your earning potential. When you’re self-employed, you’ll only take money home once you’ve covered your expenses.
As a freelancer, you might need to cover utilities, tax services, and business software. If you run a small business, you might have additional costs like rent, insurance, and employee wages.
Once this is all paid, the leftover money is yours to manage as you wish. You might like to save, invest your earnings, or re-invest into your company to help your business grow.
It’s also important to consider the initial costs associated with starting a business. If you can’t rely on savings, you might need to take out loans or find investors:
However, employment promises consistent paychecks that you’ll receive on the same day every month. This enables you to budget and plan for the future.
Additionally, your earnings aren’t usually dependent on the performance of the business (unless you’re also paid by commission). Therefore, even if the business suffers a poor month, your pay won’t be affected.
Better yet, as an employee, there’s room for promotions, raises, professional development, and bonuses:
Therefore, your financial growth and career can be better supported.
5. Additional Considerations
There are some additional considerations when deciding between employment and self-employment. For example, as a self-employed person, you’ll be responsible for finding health insurance for yourself (and your employees).
However, if you’re employed, insurance is often included with your role. This can extend to health, dental, and vision insurance. Retirement is often another critical factor. If you earn a lot as a freelancer, you might be able to retire early:
But, you’ll be responsible for opening your own retirement account, whereas employees can often access 401(k) and other retirement plans with excellent rates.
Additionally, when you take time off as a freelancer, you usually won’t earn any money. Therefore, you might need to plan ahead and complete additional work before you leave.
Plus, when you’re the heart of the business, it can be harder to switch off when you’re away. In contrast, most salaried employees are entitled to paid annual leave. This enables you to take time to truly switch off and not think about work:
Lastly, we already touched on the professional development potential you get with an employer, but it’s worth considering further. Some employers allow you to take courses, attend conferences, and more. But, if you want to pursue learning or expand your skill set as a freelancer, you’ll have to fund these opportunities yourself.
Conclusion
It can be difficult to choose between life as an employee or being self-employed. There are some key differences between the two, such as job security, schedules, and earning potential. When you consider the most important factors upfront, it’ll be easier to decide.
Do you have any questions about being employed vs being self-employed? Let us know in the comments section below!
Image credit: Pexels.
0 Comments