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Working for others vs working for yourself
Published on: Monday, August 26, 2024
By: K Krishnan
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A self-employed person may be a business owner, freelancer, or independent contractor, like journalists, lawyers, artists, accountants, actors, doctors, or engineers.
They feel they can only live a posh life if they work for themselves. Well, it is good to think big, but they must first know what they are talking about.
There are advantages and disadvantages for self-employed people and those who choose to work for others. Let us look at both sides first.
An employed person works for an organisation for an indefinite period, either part-time or full-time. They may also work for companies under a contract to perform specific tasks for a fixed salary. After hiring, a company adds employees to its payroll and frequently pays benefit packages, bonuses, and other perks.
A self-employed person earns a living by pursuing an independent line of business. They usually run their business as the sole operator, contracting directly with clients and working solely for themselves.
Entrepreneurs may either operate their businesses alone or form partnerships. They may also work for different clients while dictating the terms of engagement.
A self-employed person may be a business owner, freelancer, or independent contractor, like journalists, lawyers, artists, accountants, actors, doctors, or engineers.
They earn by collecting direct profits from the product or services they render and not salary, bonuses, or commission-based reimbursement.
Degree of independence
Employed people usually work under the control or supervision of a manager. Employers also direct employees on specific tasks, assess their performance, and analyse results.
They may occupy leadership positions as primary decision-makers, though employed staff don’t often have an influence on critical decision-making in the business.
Different partners, executives, and shareholders typically share these decisions and collectively control the company, independent of employed staff.
A self-employed person usually represents their businesses and acts as a primary decision-maker. They also exercise maximum control over their business while determining what to do and how.
An exception exists where there are partners in the business, in which case each partner holds a significant portion of control and decision-making rights. Although a self-employed person may work for a client, they aren’t subject to control from the client.
Work environment
When a company hires employees as staff of an organisation, there are usually rules of conduct that may be formal, semi-formal, or informal. For example, these rules may concern work hours, lunch, or how to decorate the workspace.
Employees also usually have dress codes to follow. These codes may specify that they dress in particular colours deemed appropriate. Depending on the company, these dress codes may be casual or formal.
For self-employed individuals, there’s typically more flexibility in their work environment. They rarely have any rules concerning how they dress, except maybe when working as contractors for an organization. They’re free to decorate their offices and workspace however they wish.
Opportunity for profit-making
In structured businesses, employed staff usually don’t make additional losses or profits, even when the business does. Employed staff may enjoy productivity bonuses, commissions, or piece-rate pay at the company.
This extra profit is different from the standard fixed remuneration that they receive irrespective of their output.
Self-employed people usually have access to extra profits or losses as they have complete control of the business. They may not have standard prices but instead negotiate the price for different products or services. They may also reduce their operating costs and increase output to maximise profits.
Responsibilities
Employed people are usually part of larger organisations with diverse staff bases. Employers often hire staff to perform specific tasks relative to their skills, backgrounds, or experiences, although they may have various skills. Though employed staff may transition across roles and jobs, they can only perform a few functions at a time.
Employed staff usually aren’t responsible for repairs and maintenance of tools or assets in a business. Instead, employers supply them for the employee to function optimally.
Self-employed people usually perform a range of responsibilities for their businesses. These tasks include customer service, marketing, sales, project management, and bookkeeping.
Self-employed staff develop proficiencies in these different tasks until they expand, hire other team members or contractors, and delegate.
They’re usually responsible for the purchase, insurance, maintenance, and repair of their work assets, which may be personal or expensed under the business. These assets may be tools, facilities, or a workspace.
Work hours
Employed staff work at hours stipulated by the relevant company. These organisations establish the general working hours in the contract terms, although employees may negotiate flexible hours during the hiring period.
Typically, employed staff work about eight hours every workday and may have the weekends off. Self-employed people sometimes operate on different work hours than employed people.
They usually have more flexible work schedules that may involve working for more or fewer hours than employed people.
An advantage of their flexible work schedule is that it allows for personal time and gives them the freedom to work as much as they want.
A disadvantage is that you may work longer hours, as there’s always more work to do when starting and growing a business.
Benefits
Employed staff most often have access to work benefits like compensation, paid leave, pension, and dental, life, and medical insurance.
In addition, they may also have access to unemployment benefits for a specified period in the event of termination of employment or layoffs.
The terms of work contain these benefits, and they may increase over time, depending on the company.
Self-employed people usually work alone or in small units and don’t typically have access to benefits, though they may enrol in insurance and pension plans individually if they wish to.
Due to their flexible work schedule, they may also take days off without needing approval, but they don’t have paid leave.
Financial risk
In most companies, employed staff don’t usually bear the business’s financial risk or operating costs.
When a team incurs monetary costs, such as travel and business expenses, the employer usually reimburses such costs when carrying out tasks for the company. If the company is bankrupt, specific laws may require them to pay off their staff from the remaining assets.
In contrast, self-employed people usually bear the financial costs incurred in their business. A reason is that, most times, the individual mixes up their finances and those of the company and can’t necessarily reimburse themselves for business costs.
Another reason is that self-employed people usually pay fixed monthly or yearly costs to continue operating their business, even if they aren’t doing any work.
Job security
Employed people generally have more job security than self-employed staff. This is because they usually work in structured organisations with proper processes in place in case of layoffs or termination of employment.
Employed staff also usually receive steady work and pay on schedule. Although employed people may experience a bit of job insecurity due to a lack of and sudden changes in contracts and staff, they possess more control over their services as they can always transition to another job or field with the same skills and experience.
Self-employed staff usually face more job security risks, as their businesses are less stable than employed staff. When there’s a lack of clients and contracts, it can be hard for self-employed staff to transition to another field, especially if they’re highly specialised.
Taxes
In most organisations, employees have little business with the company’s tax schedules. The human resources team, accountant, or chief financial staff usually prepare the company’s tax schedule and pay when due.
Self-employed people are in charge of their tax payments and preparing the business’s tax schedule.
Depending on the nature of the business incorporation, they may pay either personal income tax and company tax, or both. In addition, they usually process the payroll tax for the business on the federal and provincial levels and arrange for intermittent automatic deductions.
Career Tips
Now that you know the advantages and disadvantages, you can make the best choice.
Conventionally, young people who are entering the job market work for others for a few years. Once they gain working experience and knowledge, they may decide to be self-employed.
If you have a question about careers, write to: [email protected].
