Employee vs Self-Employed: Which Will Really Earn You More?

Is it more financially sensible to work for an employer? Or can you make more by seeking out self-employment? While business owners and freelancers have more flexibility to set their rates and can deduct many expenses from their tax, employees can benefit from more financial stability including benefits like paid holiday and sick pay. When thinking about how much money you can truly earn, it’s important to compare the perks of climbing the corporate ladder vs starting your own business. This post delves into the benefits and drawbacks of each.

Employee Benefits vs Tax Deductions

As an employee, it’s possible to gain access to a variety of employee benefits that you don’t get when you’re self-employed – provided that you secure a job at the right company. Some of the employee benefits offered by the best companies include:

- Health insurance, sick pay and in some cases maternity pay
- Paid annual leave (usually about 10 days – which may not include national holidays)
- A work phone with a phone contract that is paid for you
- A company car that may be partially financed by the employer or may have fuel costs paid by the employer
- Free memberships or deductions to services such as local restaurants, gyms or stores

Finding a job with all of these perks could free up a lot of disposable income so that you are essentially earning more. However, it is important to consider the fact that self-employed individuals can also free up disposable income through certain tax deductions. Various expenses are possible to deduct from one’s tax when you are self-employed, allowing you to take home more of your revenue for yourself. These include:

- Equipment for business such as a laptop or phone, as well as associated costs like your phone plan and internet.
- Travel costs for business including business vehicle costs and fuel when travelling to meet clients.
- Work premises costs including rent/mortgage and utility bills (if you work from home, certain home utility costs may be possible to claim).
- Employee costs including wages, benefits and recruitment fees.
- Marketing costs including website fees and advertising fees.

This guide to 15 Business Expense Categories Managers Need To Know details more expenses that you may be able to deduct. It’s important to remember that only business expenses are tax deductible and that you could be charged with tax fraud if found guilty of claiming personal expenses as business expenses.

Financial Security vs Financial Freedom

A lot of people choose to work as an employee because it can provide more financial security. You are either paid an hourly wage or you receive a salary – allowing you to easily budget how much money you have to spend from month to month. Perks like paid holiday and sick pay provided by some employers can also allow you to still receive money when you’re not working. This is something that is not guaranteed if you’re freelance or self-employed – unless you’re working, you’re not earning.

Of course, being self-employed can potentially offer more financial freedom. You get to set your rates, which could allow you to charge much more than your wages at your current job. You do have to factor in all the associated business costs when setting your prices, but it’s often still possible to make more than if you were an employee doing the same role. The only downside is that this control comes with more risk – when something goes wrong, you need to pay to put it right, and this could leave you with less money to take home for yourself.

How Much Time Will You Put In?

While more employers are offering flexible working hours, the majority of jobs taken on as an employee have contracted hours on certain days. Your employee ultimately has control over which days you take off. However, you can often develop a more predictable work schedule as an employee. Employees also tend to work less hours than self-employed individuals – the average employee works 34.3 hours per week and takes home a salary of $66,622.

Self-employed individuals put in more hours per week – reports vary, but it’s typically over 40 hours per week, with the average salary of a self-employed worker being $84,305. When starting a business, you may end up having to pour in huge amounts of time into setting up and growing your business – including working evenings and weekends. You could end up earning less per hour because of this. However, many entrepreneurs can end up taking on less work than employees in the long run once a business is established and staff are hired to reduce the burden. At this point, it’s possible to enjoy the ability of being able to choose your hours and take off time when you want without having to worry about annual leave restrictions.

In other words, both being an employee and being self-employed can have work-life balance benefits – but it depends on what benefits you get as an employee or how demanding your business is. If work-life balance is important to you consider some of these Twelve Techniques To Improve Work Life Balance.

Conclusion

All in all, self-employed workers tend to earn more, but they put in more hours than employees and their income is less predictable. When starting many businesses, you need to be willing to invest a lot of money and time upfront. In the long run, you may be able to earn enough to outsource tasks or hire employees and free up more time, making it more worthwhile, but it all depends on whether you have the skill and dedication to launch a successful business.

Staying an employee is a better option if you want financial stability. If you get a job for the right employer, it could work out more lucrative – especially if you don’t feel you have the patience and risk-taking ability to go down the self-employment route. Negotiating a good benefit package if often key to thriving as an employee as it can help give you some the freedom to match someone who is self-employed, such as being able to take more time off or even work flexible hours.