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There’s a lot of legitimate reasons why freelancing may not make sense for you right now.
Maybe one of your superiors at your firm is a fantastic mentor who has taken you under their wing.
Maybe you’re in a specialty group, getting valuable experience you could never replicate elsewhere or on your own.
Or maybe you were on the losing side of a bet with a friend on the 2002 Western Conference Finals, and the loser had to work his or her entire career in public accounting. Even though the series was clearly fixed, here you are…
But of all the potential reasons that being an independent consultant might not be for you, the most commonly cited reason is nonsensical: that you need your employer-provided benefits.
The general perception is that individual insurance plans:
- Are difficult to obtain.
- Are prohibitively expensive. Like, sail-a-yacht-around-the-world-with-One-Direction expensive.
So we’re going to address both of these sentiments here.
Insurance is difficult to obtain on my own.
Bookmark this post, because this will prove to be an indispensable resource on your quest to obtain insurance.
A step-by-step guide to obtaining insurance:
1) Go to ehealthinsurance.com.
2) Put in your information.
3) Get quotes.
4) Pick your favorite plan.
5) Sign up.
Estimated time to complete: 5-7 minutes, depending on internet speed.
Insurance is expensive. I will never be able to recoup the value of my employer-provided benefits working for myself.
Total insurance cost will vary depending on your situation. Does your spouse’s employer provide benefits? If so, just get on his or her plan.
If not, no need to speculate. Follow steps 1-3 above to receive quotes.
In addition to health and dental benefits, you’re also going to want to check out disability and possibly life insurance. To determine what coverage you need, take this 5-minute assessment from Policy Genius.
Generally speaking, disability and life are significantly cheaper than health insurance.
My total insurance cost is about $4,000/year. Your costs may be cheaper or more expensive than that, but either way, it really won’t matter.
Which takes us to…
…the big picture
So yes, you do have to pay for your own benefits when you work for yourself.
But when you can make substantially more money by freelancing, does it matter if a small portion of those incremental earnings goes towards paying for your own insurance?
Let me ask you this: If you won the Mega Millions, would you not claim your winnings because you’re concerned about the gas money required to do so? No. No, you wouldn’t.
What about PTO? My company pays me three weeks of the year to not work.
With PTO the implication is that you get “paid” to not report to work for a few weeks out of the year.
But here’s the kicker – what about all those hours you’re working in excess of 2,080. (i.e. – 40 hours/week for 52 weeks)?
If at the end of the year, you’ve recorded 2,200 billable hours, are those three weeks of vacation really paid time off?
In my mind, you’re not getting a single minute of paid time off in any logical sense of the term. What you’re getting…err giving I mean… is unpaid time on for all the hours worked in excess of 2,080.
As a freelancer, if you bill 2,200 hours, you get compensated for all 2,200 hours. Imagine that.
What about employment taxes? Won’t I have to pay the employer portion of payroll taxes, an extra 7.65%?
We’ve addressed this before. The short answer is that with basic tax planning, your taxes will be similar or less than that of an employee who earns comparable compensation through salary.
And lastly, how does my income as a consultant compare to that of a salaried employee?
See for yourself using our freelancer compensation calculator. The results just might astound you.
Or check out this analysis here, which includes the hidden costs of running your own business. As an independent consultant, you should be able to pick up tens of thousands of dollars in incremental earnings, while your expenses will increase by only a few thousand dollars.
Brad Hughes is a co-founder of Beech Valley Solutions, the premiere network that connects CPAs with freelance opportunities in advisory, assurance and tax. Beech Valley consultants enjoy higher pay for every hour worked, the flexibility to accept or reject projects, and the ability to diversify their skill sets.
