Traditional jobs get repetitive pretty fast. Not only do you have to adhere to a strict schedule that does not usually involve much leeway, but you also must face the fact that you might be laid off at any time.
Independent contractors or freelancers have a flexible lifestyle that many traditional employees envy. However, that does not mean this kind of work is for everyone.
Like any other work arrangement, being an independent contractor comes with its own set of pros and cons, which you need to be aware of before you decide to make this shift.
If you are interested in discovering some of the most important aspects associated with becoming a freelancer, just keep on reading.
First things first, are you sure that being your own boss is something you really want? Granted, it may look great on paper, but you might find yourself preferring your previous arrangement when it is too late to go back.
So, you must be sure about your motivations. You need to ask yourself why you want to be an independent contractor in the first place. Is it because you believe you can achieve more this way? If this is the case, then you have a solid reason to become one.
However, if your decision is dictated by other causes like not liking your current work environment, you may want to re-evaluate things before reaching a conclusion.
Some minor lifestyle tweaks like shifting to a part-time employee can help you feel more satisfied with your current arrangement.
Becoming an independent contractor is not an easy decision; this is why you need to take your time to ensure that it is the best fit for you.
When you are a traditional employee, your salary is dictated by a contract that you agree to and sign. There is usually no chance to get a better offer unless you score a promotion or receive a big commission.
On the other hand, the income you are expected to generate as an independent contractor should be significantly higher than that of traditional workers because you will be responsible for covering extra costs like equipment, stationary, and internet bills depending on the nature of your position.
You have to be a great salesperson, though, to pitch your services to clients. If you do not know how to represent your skills in a positive light, earning more than you currently do will be difficult.
Traditional employees do not have to worry about Social Security taxes or Medicare. Yet, as an independent contractor, you are going to be responsible for paying these taxes yourself as there will be no one withholding them from your salary.
In addition to filing your annual tax return, you have to pay self-employment taxes if your net earnings exceed $399. This, of course, can prove to be problematic if you have never had to worry about calculating your taxes before.
Fortunately, you may be able to get a wide array of deductions on business expenses. We recommend that you consult an expert to make sure that you are complying with both federal and state laws.
In addition to tax problems, you have to deal with state laws, as not all states use the same principles to determine whether an individual is an independent contractor.
Further, California independent contractor laws stipulate that a person is considered an independent contractor if they satisfy the requirements of the ABC test.
In a nutshell, the test aims at measuring how much freedom a worker has when carrying out tasks.
If their clients have no say in how they carry out projects, then they are considered a freelancer. This take-it-or-leave-it aspect is usually a hallmark of independent employment.
It goes without saying that if you are not aware of your state’s laws regarding freelancers, you will come across many problems down the line.
You may be thinking that striking a work-life balance will be easier when you become an independent contractor. However, this is not always the case; it actually depends on how organized you are.
It is extremely tempting to procrastinate when you are the one controlling the workflow. People who have been freelancers for a long time assert that setting a schedule is usually the best course of action.
Since you will not have a boss nagging you all day, you have to stay motivated enough to keep working even when you do not feel like it.
As a general rule of thumb, you may find it hard to stick to a specific schedule during the first few weeks, but it is important to persevere to avoid financial losses.
Speaking of financial losses, you might not always have a stable income as an independent contractor. It is indeed unfair, but this is just how it works. For example, you may experience some slow months when you will not find anyone in need of your services.
It is crucial to understand the limitations of your industry before making the shift. To have an extra safety net when you are strapped for cash, always keep at least 3 months’ worth of savings in your bank account.
This way, you can still cover your expenses while you look for offers.
Insurance and Retirement
Having a flexible schedule and carrying out projects on your terms sure sound great, but are you aware that you will have to lose some of the benefits associated with traditional work when you become a freelancer?
Insurance and retirement plans are two benefits that most employers offer. Sadly, you will have to purchase private health insurance, which can be costly.
You may also want to invest in an individual 401(k) or a SEP IRA to save for retirement. Fortunately, these retirement plans have higher contribution limits than traditional ones.
Becoming an independent contractor is a big decision that requires a lot of planning.
If you are sure that you are cut out for this type of arrangement, then you must consider some of the limitations that come with it, including extra taxes and the loss of certain benefits.
That said, being a freelancer can be a great step forward for you career-wise, as you may be able to generate more income.