Employed vs Self-Employed – What Is Better?

Being a self-employed person and being your boss is the dream of many who are unhappy with their employment status. You start your own business, make your own money and feel greater pride in your work compared to many employed people. But if it’s so great, why are so few people self-employed in comparison?

In this article, Real Business will outline the reasons why, as well as break down the many factors that illustrate whether one form of employment status is inherently better than the other.

What Are The Pros And Cons Of Each Employment Status?

The following is a breakdown of what makes each type of employment status attractive.

Self-Employment

Pros:

• Control – You have full decision-making power over how long you want to work, and the manner in which you do it.
• Earning capacity – The capacity of your earnings is potentially unmatched, as it’s not stuck to a contract.
• Flexibility – You can choose your own clients, projects and work environment to suit your personal ideals or preferences.
• Tax law advantages – Ability to claim expenses to lower tax obligations.

Cons:

• Income uncertainty – There is no guarantee that you’ll make any money, or receive any business. This can make it hard to plan ahead in your own personal life, as you’re unsure of how much money you’ll be making.
• Responsibility – Taxes, insurance and benefits – all of these are things you must manage yourself as a self-employed individual.
• Potential isolation – Self-employment doesn’t necessarily equate to being alone, but it’s more likely.
• Workload – If you choose not to hire anyone, then you are responsible for the many individual duties that would be split up across a standard work environment, such as an office (web design, administration, content etc.)

Full Time Employed

Pros:

• Stable – Typically, outside of being laid off or fired, you have regular pay and benefits.
• Support – Workplaces typically train and support their staff, and provide resources that help workers do their job better.
• Defined hours – By adhering to a schedule, it’s much easier to balance work and life, whereas you may need to play catch up as a self-employed worker.

Cons:

• Control limitations – The boss is the boss, and defines both rules and goals.
• Earnings ceiling – A boss controls the salary, and it’s not guaranteed how high it will go.
• Job security – Your job’s security may not be in your hands at all – external or upper management issues may result in your job being lost.

Do The Pros Of Self-Employment Outweigh The Cons?

A UK study published in 2017 named “Definitive Study of the Self-Employed” found that the mean annual revenues of the self-employed were £32,623. This is £5,000 more than the average employed person, with the self-employed working an average of 10 hours less each week. This shows that even the self-employed population who do not become billionaires can achieve a sizeable, enviable revenue.

There are some things to point out about this, however:

• Self-employed boss – Your boss is technically self-employed, and there always has to be at least one in every business.
• Income-only – The revenue stands for the income only, meaning it does not factor expenses.
• Zero employee benefits – A self-employed person does not have sick pay, insurance, paid leave or pension scheme contributions.

Is Full Time Employment Really That Limiting?

When you are full-time employed by a company, you make a set amount per month (or weekly/bi-weekly). The amount you are paid typically scales with how much you affect the business’ profits. For example, a manager at McDonalds is responsible for ensuring the restaurant runs smoothly, whereas the cooks simply make the orders. Both are important, but a manager can heighten efficiency of the store overall, whereas a cook really cannot do much more than what they are already doing.

So, the limitations on your wages can be lessened by increasing skills and improving the business’ bottom line. Furthermore, it can be improved by changing company, or staying within a company for a very long time.

Nonetheless, the cap will only ever truly be removed by becoming your own boss.

What Do I Need Before I Consider Self-Employment?

There are several things we consider imperative to have and understand before considering self-employment:

1. A clear business idea – All for-profit businesses provide services or products. You must identify a demand, and have an idea that can fill that demand for profit.
2. Financial cushion – Ensure you have enough so that your personal expenses are covered for at least 3-6 months unless you’re willing to devote your free time to working on your own business whilst being in full/part-time employment. Businesses typically take months to generate a consistent income.
3. Business plan – Know your plan. Who are your investors/lenders? What are your goals, and what is the target market? How do you fulfil the demand and what is the cost of providing the means to do so? This plan has to be applied across all aspects, marketing, operations, growth plans etc. Your competition is focused, and you have to be also.
4. Market research – You need to understand the data regarding demand, pricing and your competitors’ strengths and weaknesses. Typically, a person who becomes self-employed does so after fully understanding the market by working within it at a managerial level, where they understand how to analyse and adapt.
5. Skills and expertise – Of course, to start a business, you have to have the ability to actually do the work. Skill gaps can hinder success, so if you are not confident, keep practising or engaging in training programmes until you are.
6. Legal structure – Understand the different legal structures available for your business via HMRC and Companies House, such as sole trading, partnerships or limited companies.
7. Insurance – Insurance gives protection from financial losses incurred via claims or accidents. Research what’s available and compare costs.
8. Accounting system – Accounting takes up a lot of time, and you have to decide early whether you’re going to take on this responsibility, or if you’ll hire an accountant/bookkeeper. This ensures compliance with regulations, tracks profitability and ensures that you pay tax correctly. It is decisions like this that determine work/life balance.

Will I Work Fewer Hours If I’m Self-Employed?

One of the main advantages of being self-employed is getting to decide your own working hours, and only work when you feel like working.

While most self-employed people work fewer hours every week than employed people, it usually takes an incredible amount of time and effort to start their businesses and develop the necessary skills to become successful. Employed people’s official working hours are also usually consumed by unnecessary meetings and chit-chat, while self-employed people’s official working hours are consumed by work.

It also takes an incredible amount of self-discipline for self-employed people to get everything they need to do done with no supervision. Employed people are used to having their employers guide them and tell them what to do, so it can be difficult to maintain motivation and work ethic without someone to report to.

Can You Be Employed And Self-Employed At The Same Time?

In the UK, it is possible to be employed and have self-employed status at the same time, though your current employment contract would have to allow for you to have a business of your own. After all, you have to notify HMRC for tax purposes.

The truth is, this is how many self-employed contractors start. The reasons for this are simple:

• Income uncertainty – As we’ve pointed out earlier, there is uncertainty surrounding income. For the first few months, little to no income will be made. In fact, there may be a deficit.
• Learning – Some people may be learning the tricks of the trade from the boss, who clearly knows what they’re doing, before having a try at self-employment themselves.

Conclusion

Overall, we recommend that anyone considering becoming self-employed only do so after spending a good bit of time experiencing the industry they’re targeting, and learning it. Self-employment is hard work.

FAQ – Self-employed status vs Employed PAYE?

When you are officially employed by a company, your employer takes care of your PAYE for you, meaning you do not have to manually pay income tax. While your salary is being taxed for income tax, you don’t need to handle any of the admin involved unless you are making an additional income from another source outside your job.

As a self-employed person, you are fully responsible for your own taxes. Once you’ve registered with the HMRC, you’ll need to submit a self-assessment tax return form. Once this has been reviewed, you will be sent your tax bill, and you will also need to pay national insurance contributions.

FAQ – Full-time employee protections

When it comes to benefits, employees have it way better. Employees are entitled to sick leave, maternity leave and many other benefits each year. Employees are also entitled to statutory sick pay, while self-employed individuals typically do not receive such benefits.

As a self-employed person, you, obviously, don’t have these rights under any employment law. The flip side is, of course, that you can take as many holidays as you like once you make enough money, or have people working under you.