The Dark Side of Self-Employment

Working for yourself can be very rewarding. You have the flexibility to work where you want, when you want and how you want. There are many benefits the self-employed receive that employees don't qualify for such as tax deductions. In spite of this, working on your own can be a very difficult path and many individuals are simply not able to adjust to working on their own. Before you decide to leave your job and go out on your own make certain you understand the challenges that come with being self-employed.

Lack of Job Security
Working on your own means that you are directly responsible for the amount of work you accomplish each month. This is great if you're established and there is alot of work available for you to do. However, there may be times, especially when first starting out on your own that no work is coming in. If your employed and your employer is unable to locate enough work to keep you busy you still receive a check. Remember that when you're the boss there is no unemployment insurance to assist you. If you don't have business coming in, you don't earn money. Simple as that.

Lack of Benefits
Many employees receive health insurance, paid vacations and paid sick leave. Some employees may even receive retirement benefits, bonuses and employee profit sharing. These benefits of course, are not available for the self-employed. As your own boss, you will have to pay for your own health insurance, which is usually a higher rate than what employers pay for their employees. No paid vacations and no help with your retirement.

I already mentioned the lack of unemployment insurance. Did I mention no worker's compensation? If you're employed and injure yourself on the job, you will receive workers compensation benefits, even if the injury was your own fault. As a self-employed individual you will not have this luxury. Any loss of work due to injury will come out of your own pocket.

No Free Equipment or Office Space
Most employees are provided with a place to work and the required equipment they need to get the job done. As a self-employed individual you will need to purchase and own all your own equipment and supplies. You will need to either rent an office space outside your home or have an office inside your home in which to work. Working from your kitchen table in your jammies may sound glamorous, but reality will hit you hard when your trying to concentrate on your work while your family is around. It is very helpful to have a spot designated for your business, preferably a room with a door.

Complete Business Know how and Responsibility
As a self-employed individual you will need to know all the legal requirements of running your business. You will be expected to understand all the tax laws and to pay them in a timely manner. You will be expected to keep records of every financial transaction and decision you make. You may be required to learn new skills in order to effectively run your business.

Possible Discrimination
You may find it more difficult when dealing with lenders, insurance companies and other businesses when you work on your own. When you first start out on your own, you will not have a guaranteed annual income like employees do. For example you may find it almost impossibly to acquire disability insurance, especially if you work at home.

Health Insurance will probably be alot easier to obtain but the premium rates will be very high. Employees have the benefit of receiving a group rate offered through their employment. This of course will not be available to you.

You may even find it difficult to purchase a house because many lenders are hesitant to work with self-employed borrowers. You may be able to get around this by providing your lender with copies of recent tax returns and a business profit and loss statement.

Deadbeat Clients
Your income is not only dependent apon how much work your able to obtain and keep up with but also depends apon your clients paying. If your a contractor or you provide services which don't require upfront fees then you may find yourself dealing with clients who are very slow to pay. Worse, you may run into clients who never pay. There is of course no compensation for this. Your loss will be your own.

Social Security Tax is Doubled
When your self-employed you will need to pay twice as much Social Security and Medicare taxes than if you were employed. When you are employed your employer matches your tax payment. When you are self-employed you must pay the whole amount yourself. (15.3% of your income) This is in addition to federal and state income taxes. However, some of this may be lowered through certain deductions you may be allowed to take.

Personal Debt Liability
If your business fails you could lose everything, including your home. If you're a self-proprietor or a partner in a partnership you are personally liable for your business debts. There are some ways you can protect yourself from this, such as obtaining insurance or incorporating your business.

By now you must be wondering why anyone would want to go into business for himself or herself. The truth is that working for yourself can prove to be one of the most rewarding paths you can take. There are many challenges along the way and the more you know in advance how you can handle each challenge, the more successful you can become.