The Hidden Cost of Running a Business that You Must Know About
As the growth in self-employment continues to rise at a steady rate, researchers have estimated that more than 60 million individuals in America will work as independent contractors or freelancers by the end of year 2020. The new work trend is a direct result of corporate downsizing and the rise of the ‘gig market’ thanks to various freelance platforms that are connecting clients with self-employed freelancers around the world.
But despite the obvious advantages of starting a one-man business such as independence and flexibility in schedule, self-employment has surprising hidden disadvantages that are costing workers a fortune.
Sure, freelancing gigs often pay more per hour than a regular job but the unsteady workflow makes it very undesirable for those who’d rather make a steady income every month through a regular nine-to-five job. Once you factor in the uncertainty of the cash flow and added stress that comes with constantly looking for new gigs, the payoff for self-employment is worse than regular employment.
According to the Department of Work and Pension, the self-employed individuals make 50% less annual income than their employed counterparts. The average income of freelancer and contractors who work remotely has also seen a 30% decrease due to competitive rates from workers from countries with low cost of living.
No Paid Leaves
One of the biggest selling points for self-employment that is often overly-promoted on the internet is the freedom to work at anytime and from anywhere. Most people who jump on the self-employed bandwagon are often tempted by the prospect of earning while being on a vacation – but the reality can be quite the opposite.
Freelancers don’t get any sick leaves, paid leaves or vacation. In fact, they must work all year round in their struggle to earn a steady income. Life isn’t one big vacation for the self-employed after all.
Freelancers or independent contractors do not get any of the work benefits that regular employees do. One of the biggest downsides of being your own boss is that no one will pay for your health insurance but you. With a surge in the number of self-employed workers around the world, the protection gap between freelancers and their employed counterparts is getting bigger.
Data shows that most freelancers do not have a personal contingency plan in place to minimize any financial risks and are often inadequately insured. Without any insurance for critical illnesses or the freedom to take sick leaves, these individuals are exposed to the risk of financial despair in case of health crisis.
Workplace pension is one of the biggest benefits of a nine-to-five job that helps employees plan for the future and make adequate savings for retirement. The contributions from the government and the employer play an important part in these pension plans that come in handy after you retire.
No matter how big or small the organization that you work for, your employer is now has a legal obligation to provide a pension plan. The same cannot be said about the self-employed individuals. Statistics show that less than one-third of the independent workers save enough for retirement or old age.
Hard to Get Loans
What about if you want to take out a personal loan or apply for a mortgage as a self-employed individual? The irresponsible lending practices of the banks in 2008, that led to a huge financial crisis globally, has now made it much more difficult to get a loan.
In order to apply for mortgage or a large loan, the bank must know all details about income, but having an unsteady paycheck and no guarantee of continued employment in the future, banks are more hesitant to lend money to independent workers at the same rate as other full-time employees. The lending requirements for the self-employed include details of past two years of income as an evidence that they possess sufficient funds to pay back the loan on time.
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