Background
I was laid off from my full time position as Internet Marketing Manager at MKTG Services towards the end of last year. Fortunately, I was able to jump right back into the saddle as I quickly hooked up with a past colleague and began working on a freelance / consulting basis with them.
In some ways, I have enjoyed the freedom of being unencumbered by a full time position. It is easy to become accustomed to setting your own hours and own pay rate. However, I have come to learn that being self employed can also be more stressful and more ‘work’ than a full time position, also.
Here is a quick list and breakdown of my own personal pros and cons of this lifestyle and work environment:
Pros of Self Employment
- Setting Your Own Schedule — You have a great amount of control over your schedule and your availability. As long as you meet your deadlines, you can do your work during any period that works best for you (early morning, late night, in between episodes of Law & Order on A&E).
- Higher Hourly Rates &mdash Since you are not receiving the package of benefits a full time job would provide for you, you should generally be able to command a much higher hourly rate for compensation purposes. Some general rules of thumb that I have read suggest taking the yearly salary that you would be paid for a full time position, divide by 2,000, and then multiply that by 30-40% as a starting point for your hourly charges. Depending on the market, your skills, and your clients, you can well charge more (or sometimes less). Do your research and don’t cut yourself short.
- Control Over Clients / Projects That You Work On — Since you are in charge (usually), you can choose the projects and clients that are best for you. This could be tough when you are first starting out and trying to build your client base, but you still have the final choice on whether to take on a specific project/client.
- Managing Your Own Comfort Level — You can overwork (or underwork) yourself if you so choose. Just because a normal business day has 8 hours in it, this doesn’t mean you are constrained to that schedule. You can work and bill for however much time per day you (and your clients) are comfortable with.
Cons of Self Employment
- Less Stability — Until you build your client base, you will likely see an instability and fluctuation in the amount of hours that you are working per week. After you have built your client base, it is still possible that you lose a big client and have an increase in instability during certain periods.
- No Benefits — This is a big one. You don’t receive health insurance, paid time off, paid holidays, profit sharing, bonuses, 401k plans, or any of those other perks that come with a full time position. This is why you need to build the cost of these benefits into your hourly rate. You need to be able to charge a rate that will allow you to cover your expenses for these benefits and still make a profit.
- Self Employment Tax — Being self employed means that you actually pay an additional 7.65% during tax time for your Social Security and Medicare withholdings. If you are employed in a full time position, you pay 7.65% and the company covers the other 7.65% of these withholdings. This is another piece of the ‘expense’ puzzle that your hourly rate needs to cover.
- Taxes Are More Annoying — In general, the whole tax process is slightly more annoying.
- 1099-MISC — You will receive 1099-MISC tax documents from all of your clients (if you earned over $600 with them) that document your earnings. In my case, I did not receive them until I requested them from my clients.
- Business Expenses — It is possible to lower your tax burden if you had expenses related to your business. This requires solid record keeping and itemization for all of these expenses. It’s just another piece of the puzzle that adds to the complexity and annoyance of the whole process.
- Record Keeping — You don’t have an accounting or human resources department at your disposal, so you need to be the keeper of all the records.
- Federal and State Taxes — It is likely that you will not have any tax withholdings from your pay checks. This means that at tax time, you will have to pay all of those taxes that would normally be deducted from your full time check. You will need to plan for this and not let this take you by surprise when the time comes to pay the government (Setting up a specific bank account to hold your tax withholdings would be a wise step.) The following year, you may be able to pay Estimated Taxes throughout the year to make this easier. When tax season comes, you will have to remedy your Estimated Tax payments with your actual earnings and see where you end up. Good times!
- Always Selling Your Services — Since you live and die by your clients and your projects, you need to put on your salesperson hat and always be looking for ways to expand your business with a current client or find new business with other clients. The whole constant selling and constant battle for new business was definitely a piece that I did not enjoy dealing with!
- No Safety Net — If you don’t work, you don’t get paid. If your computer breaks, you have to buy a new. There is nothing to fall back on here. You either land clients and find new projects or you are going to be in trouble. In a full time position, there is a whole support structure built around you.
Verdict
All in all, I have enjoyed my experiences and the inherent flexibility of being self employed. I have also come to learn more about myself during this period and have reached the ultimate conclusion that this is not the right place for me to be at this point in my career.
Farther down the road, with a much larger network of colleagues and contacts in hand, perhaps there would be reason to revisit the freedom and stress of being self employed. For now, I am eager to return to the full time workforce and become involved with a company that embraces online marketing and fosters an atmosphere that is team driven and enjoyable.
