The gig economy is all the rage these days and it’s not difficult to see why. Even people who prefer 9-to-5 jobs are beginning to realize that there is no long-term security no matter how much effort they put into their careers.
In addition, with the world becoming smaller by the minute – thanks to the new technologies – many employees have now shifted towards a cheaper but no less-skilled workforce located in other countries.
This is a complex topic, to be sure, but there’s no reason why anyone couldn’t start freelancing and making a decent living out of it. For one thing, no office space is required for remote work, meaning that businesses can save LOTS of money simply by delegating their work to their employees who are set up remotely. This leaves space for higher salaries and additional benefits.
Still, freelancing is not ideal. There are a couple of things every freelancer needs to know upfront so that they can make amends in the fields poorly covered by the gig economy (insurance, for example).
Finally, many people have discovered that they can make more money by running their own online business rather than working for someone. This allows for greater freedom, and it also spells hard work. Small businesses engaging in, say, dropshipping, can be run by a single person, but the more customers a business gets, the more people are needed to keep everything in order.
Whichever choice you prefer, here are the most important things you should know.
1. Which Type of Freelancer Are You?
First of all, there are different types of freelancing. People engaged in per-project jobs are referred to as independent contractors. This group of people is most commonly associated with the term “freelancer.”
However, freelancing can be done in different ways. Many 9-to-5 workers do some jobs on the side. This group of people is often referred to as moonlighters. Normally, they most likely hold a regular job and perform various assignments in their spare time. Engineers are a good example.
Further out, there are temporary workers. Similar to 9-to-5 jobs, people can have a contract position for a predetermined time period.
Next on our diversified workers. These people usually work part-time and on a per-project basis, balancing between the opportunities. They can be observed as on-demand workers, like delivery workers working as virtual office assistants in the evening.
Lastly, there are freelance business owners, who, as we’ve seen above, may need to hire additional freelancers to keep their business running smoothly.
2. Notable Benefits of Freelancing
For many freelancers, flexible schedules are the determining factor. Digital nomads are becoming increasingly popular, and there’s a good reason for that.
“Older” generations (relatively speaking) may find it difficult to change their viewpoints, but people in their 20s to 40s predominantly favor remote work. It allows for a more relaxed lifestyle, seeing as the only thing that’s needed to perform the job is – a stable internet connection.
Why not travel the world with your laptop without having to ask for permission from your boss?
In addition, many freelancers work shorter shifts (or don’t have shifts at all).
3. Additional Business-Related Costs and Taxes
When it comes to costs, things may stand differently, depending on the type of freelancing you do and on the actual job description. Self-employed workers need to cover all kinds of expenses that traditional employees don’t have to think about, like fees, work equipment, the technology needed for their work, costs of commuting, communication, etc.
Finally, there are taxes to consider. For many freelancers, hiring a tax professional is the best choice. Calculating taxes and gains can be quite difficult, especially for freelance business owners.
In a nutshell, freelancers are responsible for their self-employment tax, social security, and Medicare taxes.
4. You’ll Have to Cover for an Insurance Policy
For many freelancers, moonlighters excluded, the fact that the employer doesn’t cover an insurance policy is a major drawback. Traditional employer benefits are not part of the package when it comes to the gig economy.
This means that freelancers need to earn enough money to be capable of paying for their own coverage, and it is a well-known fact that individual plans are more expensive than those provided by a company.
There are two notable exceptions:
- Freelancers can obtain a health insurance policy by joining a spouse’s plan, where applicable.
- Younger freelancers can count on their parents’ plans (up to the age of 26).
5. Days Off Mean Less Money
Another notable drawback of freelancing is that it doesn’t offer paid leave. Freelancers need to earn more money to be able to afford work-free holidays and sick leave.
Simply put, if you miss a day “at work,” you won’t get paid for the day. This can be particularly difficult for people who make ends meet rather than earn big bucks working remotely.
6. Retirement Plans
Retirement plans are, as a rule, a complex question even for 9 to 5 workers. People are generally concerned about their savings, which is the main reason why even traditional employees often decide to buy additional coverage.
If you’re planning to go full-time freelance, you’ll need to start thinking about your retirement plans immediately. Many freelancers set aside some money to be used much later, while others buy an insurance plan.
The additional options that may prove beneficial to some freelancers are Solo 401(k), Traditional or Roth IRA and SEP IRA.
Last but Not Least
Finally, the gig economy is certain to continue growing to accommodate the increasing workforce. In time, other benefits will present themselves.
For now, there is one great way to get the maximum out of your freelancing – keep an eye on the Freelancers Union! The organization isn’t widely known and still doesn’t bargain with employers like its traditional labor unions counterpart, but it is free to join and certain to grow.
It offers a number of benefits, too, including affordable life, health, dental and liability insurance, as well as a retirement plan, all of which are cheaper to obtain through the Union than individually.
Another great organization is the National Association for the Self-Employed that offers coverage as part of its annual membership fee.
Everything considered freelancing can be profitable, enjoyable, and still offer sufficient coverage. Keep an eye on the developments as the gig economy has been expanding rapidly.