The first thing many people do when thinking about moving from being employed to self employed is compare their salary. They know the business charges them out for £50 an hour (for example), but they are only earning £15 an hour. Therefore, if they were to become self employed this would be money in their pocket. Or would it be?
In this blog post we look at the hidden costs of self-employment. These are things that you need to consider when thinking about moving from employment to self-employment. You will find that there are lots of costs that you avoid as an employee, which can be large costs when you are self-employed.
By understanding these costs in advance, you can ensure you make the right decision. We offer a complete beginners course to business finances. This has been designed for people just like you. If you’re wondering if self-employment is the right move for you then book our 3 to 6 month course to help you. In this meantime, read on for some of the hidden costs you can expect.
Working For Free
You may have seen this heading and scoffed – no way are you going to work for free! You’re partly right. While you may never completely work for free for the paying client, you will do some work for free. For example, the marketing to get the work in will be non-billable hours. The same is said for sending invoices for payment. This is an admin task you need to do to get paid, but it’s not time that you are being paid for. Freelance Mag recommends that you only plan to work for 6 paid hours a day when predicting your potential income.
Do you have benefits from your existing employer? Things like health insurance, paid mileage, complimentary coffee and lunches, paid for learning and conferences as well as pay raises and bonuses. When you become self-employed you lose these benefits. They may not seem like anything major but all these extra costs will soon add up.
Unpaid Time Off
Whether you come down with the flu for a few days, need a day off for a hospital appointment or want to take a holiday for a few weeks, you will not be paid for this time off. When creating your service or product cost you need to calculate this into your fees. We would recommend that your rates need to be about 10% higher than your standard (employed) hourly rate as this will cover up to 5 weeks off on holiday or sickness.
You may choose to start running your business at home and think this will be cheap as you have your own laptop and that house is yours. However, there will be hidden costs of being self-employed even when you’re working from home. For example, your laptop is great now, but it will need replacing eventually. You may also choose to get a new desk and office chair to make working from home easier. Your utility bills will go up too as you need the heating and lights on all day. In some cases, you may find you need to upgrade your wi-fi too as it’s not fast enough to work with.
On top of this there are then HMRC fees and tax costs that can really add up, especially if you don’t keep on top of them. If you want to make sure that leaving your full time job to go self employed is the right decision for you, why not book a meeting? We can talk through the real costs of self employment and how much it could cost you to become self employed.