Employment vs running your own company

Contemplating the allure of becoming your own boss? Is the prospect tailored to your preferences?

Could you part with your dependable salary and sanctioned vacations, or do you yearn for a more adaptable timetable? Let’s delve into the pros and cons of embarking on the solo journey. 

As the adage goes, if you desire an exceedingly stern supervisor, then venturing into self-employment might be your forte.

On the surface, the realm of self-employment presents a trove of attractions: liberation from seeking permission for time off, the luxury of cherry-picking your projects, the pliancy and prospects it affords.

Reality paints a more nuanced picture. Steering your own ship entails being the ultimate decision-maker, and what you gain in unshackled autonomy, you might inadvertently sacrifice in the realm of stability.

The tug of war between being employed by others and being self-employed showcases valid points on both sides. Should you find yourself pondering this crossroads, much will hinge on your unique circumstances: your appetite for risk, your unwavering belief in your capabilities, and even the dynamics of your personal relationships and familial context.

Going self-employed

Self-employment offers a range of paths to explore. You might choose to initiate your own self employed business, provide freelance services to a diverse clientele, or engage as a contracted worker for a specific duration. The emerging ‘gig economy’ has blurred the lines, allowing individuals to balance traditional employment with providing services and goods in their spare time, often online.

This hybrid approach can serve as a stepping stone toward complete self-sufficiency, offering a gradual transition to full-time entrepreneurship for those whose part-time gig endeavors prove successful

What are the pros and cons of being self-employed?

Transitioning to becoming your own boss can signify progress in certain aspects, while entailing trade-offs in others. Consider these factors that demand equilibrium as you navigate this pivotal decision.

Income

Is your income likely to surge, dwindle, or remain relatively constant upon entering self-employment? Freelancers in the UK exhibit an average annual income of approximately £50,000 – although this figure is a broad estimate, encompassing diverse industries and roles spanning junior web developers to senior management consultants.

Typically, as a self-employed professional, your hourly earnings tend to surpass those of traditional employment. However, the flip side lies in the predictability of this income. As a freelancer or contractor, inevitable gaps between projects might arise, while self-owned businesses may encounter periods of slim or negative profits, potentially curbing your overall earnings. Consequently, the pursuit of consistent work could become a perpetual task, ushering in pressure and demand on your resources.

Tax

When you hold an employee position, your taxes are conveniently managed through PAYE, alleviating the need for intervention unless you possess additional sources of taxable income.

On the contrary, embracing self-employment entails the onus of ensuring accurate tax payment. Here, you assume the responsibility of meticulously documenting all earnings and business-related expenditures throughout the year, accompanied by the completion of an annual self-assessment tax return form. Should you operate a limited company, tax obligations extend to the company itself. If you freelance and receive compensation via your limited company, the looming presence of IR35 tax legislation, scheduled for implementation in 2021, warrants thoughtful consideration to avoid potential pitfalls.

Navigating your tax responsibilities can swiftly evolve into a time-intensive endeavor. In such cases, enlisting the services of an accountant might prove to be the most streamlined and effective route to manage your fiscal matters

Paid holiday, sick pay and maternity/paternity leave

The realm of being an employee encompasses several often-underappreciated advantages, such as the provision of paid holiday, sick leave, and maternity/paternity benefits. However, if you opt for self-employment, the onus of securing these perks largely falls on your shoulders.

When you hold an employee status, you’re typically entitled to a span of 39 weeks of maternity pay, provided you’ve served the company for an adequate duration. In the self-employed sphere, you can also access maternity income if you’ve been contributing to Class 2 National Insurance. When charting family plans, this factor should be woven into your considerations, as adjustments to your work setup might render you eligible for support.

Turning to the domains of paid holidays and sick leave, the only viable route to facilitate these benefits as a self-employed individual involves diligently accumulating dedicated funds solely earmarked for these purposes. While cultivating this level of fiscal discipline might pose a challenge, it remains pivotal if you intend to enjoy any meaningful time off while pursuing self-employment.

Workplace pension

Yet another perk that graces the realm of employee status is the inclusion of a workplace pension. Legal obligations now dictate that employers automatically enroll their staff into a pension scheme. This mutual investment, with contributions from both you and your employer, culminates in a remarkably valuable asset by the time retirement beckons.

Contrastingly, for those journeying down the self-employment avenue, the responsibility of establishing a personal pension rests squarely on your shoulders. This often underestimated facet of financial planning is, in fact, one of the most crucial. The inexorable march of time can’t be evaded indefinitely, even if work remains your fervent desire. Other investment avenues, such as property, pale in comparison to the unparalleled tax advantages that a pension offers.

Initiating a personal pension should ascend to the apex of your priorities, lest you disregard the option of utilizing NEST. Amplifying your contributions to mirror those that an employer might contribute is also an astute move. Should you seek guidance, a financial adviser is well-equipped to offer a pension projection and advocate for an optimal contribution level.

Work-life balance

The pinnacle advantage of forging your path as a self-employed individual rests in the profound flexibility it offers. The reins of determining your work hours, indulging in well-timed breaks, and, in certain cases, the liberty to work from virtually anywhere worldwide, constitute a freedom that can harmoniously align your career with familial commitments and personal aspirations.

Nonetheless, maintaining a delicate equilibrium is imperative to prevent your income potential from diminishing. Striking a harmonious balance between taking ample time off and maintaining a consistent work rhythm becomes paramount.

Excessive hiatus or sporadic work patterns might inadvertently cast shadows of unreliability upon you, potentially unsettling your client relationships. Paradoxically, some self-employed individuals discover that they claim fewer vacation days than they once did when under the employ of others.

If your quest encompasses a refined equilibrium between work and life, coupled with the stability characteristic of traditional employment, a dialogue with your employer could be illuminating. Initiating conversations to explore the possibility of tweaking your work hours, such as adopting a 7am to 3:30pm schedule, or broaching the topic of remote work could yield fruitful results.

The landscape of flexible and remote work is progressively gaining acceptance, fostering an environment where work-life balance finds its rightful place.

Long term prospects

One of the enduring aspirations for most employees is the pursuit of career advancement. The trajectory of growth is often intertwined with the expectation that your employer will play a pivotal role in nurturing your journey. However, when the mantle of self-employment is assumed, the dynamics shift.

Here, the contours of your career progression hinge upon the experiences you accumulate and how effectively you leverage them. This might encompass courting larger and more esteemed clientele or engaging in more ambitious contracts. The onus rests on you to proactively market yourself, harness the full potential of your past endeavors, lest you find yourself stagnating at a plateau for an extended period.

Ultimately, self-promotion becomes the compass, for in the realm of self-employment, advancement lies in your hands alone. In the realm of self-employment, a multitude of avenues beckon to foster your career’s evolution. These include acquiring additional qualifications, meticulously crafting a robust portfolio, aiming for prestigious clients to elevate your profile, and venturing into novel realms as your competencies expand.

This self-driven approach is key, ensuring that as you diversify your skillset, your professional trajectory follows suit, propelling you toward multifaceted success.

Mortgage applications

Navigating the mortgage landscape can pose a genuine challenge for those immersed in self-employment. The journey to securing a mortgage entails showcasing a consistent income track record spanning at least three years. Equally crucial is the provision of your self-assessment tax forms (or company accounts) spanning the last two years.

Notably, if there are intermittent gaps in your earnings, this could potentially translate into a reduced loan amount or a less favorable deal.

Here’s where a seasoned accountant can truly shine as a valuable ally. Their expertise can prove instrumental in bolstering your case for mortgage approval. Additionally, enlisting the assistance of a mortgage broker specializing in self-employed mortgages can provide an edge. This synergy of financial expertise ensures you are equipped with the optimal strategies to navigate the intricate web of mortgage requirements, effectively increasing your chances of securing the mortgage that aligns with your aspirations.

Benefits

Base earnings provide only a fragment of the comprehensive picture. The realm of employment comes adorned with potential fringe benefits, contingent on your employer. These can span from performance-based bonuses, childcare assistance, and subsidized gym memberships to health insurance coverage, company vehicles, and bike initiatives, among others.

Should the prospect of venturing into self-employment captivate your thoughts, it’s prudent to ponder upon the array of existing benefits you currently enjoy. Deliberate on the ones you wish to retain and ascertain their financial value. This dimension proves pivotal when crafting a financial blueprint for self-employment, as these benefits should be factored into your projected earnings.

While you might entertain the notion of forgoing these benefits, it’s essential to acknowledge their worth when juxtaposed with the earnings of a freelancer. The disparity between an employee’s conventional salary and a freelancer’s income must be contemplated with the recognition that these supplementary perks bear their own value, adding to the holistic comparison between the two paths.

Insurance

Employers are bound by legal mandates to hold insurance coverage that safeguards against work-related illnesses or injuries. This not only ensures that they can provide compensation if you lodge a claim, but it also extends to encompass benefits like life insurance for specific employees. Such life insurance policies grant a lump-sum payout to your family should you pass away during your tenure with the company.

When embracing self-employment, these privileges are not automatically extended. Nevertheless, you possess the autonomy to secure your own insurance safeguards. For instance, personal accident and life insurance can provide a financial cushion for you and your family in case of unforeseen events.

Income protection coverage steps in to support you in situations where health impediments prevent you from working. Additionally, acquiring professional indemnity insurance is advisable, as it offers coverage for expenses incurred if a client takes legal action against you for a significant error.

These insurance components should be meticulously incorporated into your financial calculations, ensuring comprehensive coverage as you embark on your self-employed journey.

Job security

What level of job security can you expect as a self-employed individual? And how stable is your position as an employee? The pendulum swings between both ends of this spectrum, and the ultimate verdict lies solely within your purview. Convincing arguments abound on either side of this debate, and the determination rests on your unique circumstances.

Occasionally, opting for self-employment can offer more stability than relying on a large company that wields decision-making authority beyond your reach. Conversely, steering your own ship means you bear the exclusive responsibility of sourcing your next income stream.

In making this pivotal choice, your personality plays a pivotal role. If you thrive on self-promotion, relishing the thrill of acquiring new clients, you might find yourself more empowered at the helm than being a passenger.

Conversely, if your inclination leans towards immersing yourself in the work itself rather than chasing business prospects, embracing employee status could offer a notably less stressful path. The harmony between your disposition and your chosen path of employment emerges as the guiding light in this deliberation.