A move to being your own boss can mean gaining in some areas while losing out in others. Here are the factors you’ll need to balance out when making your decision.
Will you earn more, less or roughly the same when self-employed? In general, you will earn more per hour working for yourself than you will as an employee. Where you may lose out is in the dependability of that income.
As an employee, you pay tax automatically through PAYE, so you don’t need to do anything unless you have other taxable sources of income. By contrast, when you’re self-employed you take full responsibility for paying the right amount of tax. You’ll need to keep accurate records of everything you earn during the year and all business-related expenses, and fill out an annual self-assessment tax return form. If you run your own limited company, the company will also have to pay tax.
Paid holiday, sick pay and maternity/paternity leave:
Being an employee has many advantages that you may take for granted, such as paid holiday, paid sick leave and maternity/paternity leave. If you want these when you’re self-employed, then you’ll have to arrange most of them for yourself. As for paid holiday and sick pay, the only way to arrange for these when self-employed is to build up ring-fenced
funds that you only use for these purposes. This kind of discipline can be tough, but it’s important if you want to have any time off.
Yet another benefit of being an employee is having a workplace pension. It’s now a legal requirement for employers to enrol their workforce automatically onto a pension scheme. Both you and your employer contribute to it, making it an extremely valuable benefit by the time you retire. If you’re self-employed, you’ll need to set up your own private pension. This is one of
the most overlooked pieces of financial planning among the self-employed, but one of the most essential.
Benefits- Being an employee can bring perks such as bonuses, help with childcare, free/discounted gym memberships, health insurance, company cars, bike schemes and so forth. If you’re thinking of going self-employed, think about which of your current benefits you would want to keep, and work out how much they are worth in money terms. Factor this in when calculating how much you’ll need to earn from self- employment.
Insurance- Employers are legally required to have insurance that covers them for if you get ill or injured because of work. This in turn means they can afford to pay you compensation if you claim against them. Some also offer a life insurance benefit for certain employees, which will pay out a lump sum to your family if you die while you’re working for the company. When you’re self-employed, you won’t have these benefits. However, you can take some insurance out for yourself. It’s also advised
that you take out professional indemnity insurance to cover the costs if a client sues you for making a serious mistake.
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