In the world of employees with stable jobs and benefits, there is a lot that can be taken for granted. The self-employed, home business owners, contractors and freelances, though, can't take many of these benefits for granted. Indeed, before leaving their jobs, they often neglect to think about the value of the benefits they receive from work. A story last year on CNN Money claimed that many workers actually cost their employers 25% to 30% — or even 40% — on top of their base salaries.
Those who do not work as employees with benefits, though, don't see the benefits that many workers take for granted. Before you decide that you would be better off on your own, consider the following financial perks that contractors can't take for granted:
- Cost of facilities: Your employer pays for your workstation and the supplies in it. Power, water, phone and other utilities are also paid for the company. In many cases, you can even get reimbursed for mileage that you drive on behalf of the company. Once you strike out on your own, whether you are telecommuting or doing some other kind of work, all of those expenses are entirely yours.
- Taxes: Many workers, as they look at the money withheld from their paychecks for taxes, don't realize that some taxes are partly covered by their employers. Indeed, there are payroll taxes that your employer is covering, including half of your Social Security tax. Once you are on your own, you pay the employer side as well as the employee side, meaning that your taxes could go up — even if you don't make any more money.
- Health insurance: You might gripe about the rising cost of health insurance premiums at work. However, many employers pay a portion of the premiums. When I quit my job to go back to school, I considered COBRA. Then I realized that I would be covering the entire cost of the premiums. I was shocked to realize how much my employer had been paying. Now self-employed, I pay my entire health insurance costs — not contributions from someone else. I did find a reduced price, though, by getting a group plan through an aggregating site.
- Retirement plan: When you work for someone else as an employee with benefits, you get help with a retirement plan. Your employer offers different options, and you can have money automatically withdrawn from your paycheck to make saving for the future a little easier. As a contractor, though, you are on your own. No employer matches. You have to look at your options, usually different types of IRAs, to determine what works best for you. You have to remember to make contributions, or set up an automatic debit (and don't spend the money before it can be taken out).
- Worker's compensation: If you are injured on the job while working for someone else, your employer picks up the tab for worker's compensation insurance that helps cover your costs. If you are a freelancer, you have to be prepared to cover the costs with your own health insurance, or with the help of disability insurance.
And, of course, one can't forget paid vacation days and other perks. It's true that there are many perks associated with working for yourself. But, before you can weigh the pros of working for yourself, you also need to consider the costs that can come with working on your own.
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