Many employees dream of going into business for themselves. Working from home and setting your own hours is a dream for many, but it comes at a price.
As an employee, your employer is responsible for paying a certain amount of taxes on your behalf and providing you with benefits like sick pay, healthcare, and medical leave. Those benefits don’t exist when you’re self-employed. However, not all benefits are worthwhile, and the perks of being self-employed outweigh most employee benefits.
Health insurance isn’t all it’s cracked up to be
Getting health insurance through an employer seems like a necessary benefit, but is it? It’s widely known that health insurance barely covers much of anything these days. Deductibles are outrageously high, and monthly premiums are on the rise. People are paying several hundred dollars each month for the privilege of paying full price for medical care until they reach their deductible. Some deductibles can be up to $3,000.
Self-employed people, on the other hand, can skip the monthly premiums and put their money in a dedicated emergency fund. A self-employed person without health insurance will pay full price for care, but won’t be shelling out hundreds each month. There are instances where health insurance is necessary for the self-employed, but if you don’t need to use it regularly, you’re not missing out.
Disability insurance can come in handy
Disability insurance is one of the few employer-sponsored benefits self-employed people are missing out on. If a self-employed person is injured and unable to work for a long period of time, their income will suffer. Injuries can happen on the job or in their daily life. Without disability insurance, there is no way to recapture lost wages without filing a lawsuit.
For instance, those who suffer serious injuries in a car crash often need to pursue a personal injury lawsuit. Neither health insurance nor auto insurance is enough to cover most medical bills. It’s worse in a no-fault state like New York where auto insurance ignores pain and suffering.
Unfortunately, car accidents in New York are common. According to Lipsig.com, more than 41% of crashes resulted in serious personal injury and 1,109 were fatal. All self-employed people who drive cars are at risk, and one accident can result in a long-term disability.
There are disability insurance plans available for the self-employed. However, most plans will only cover up to 60% of your income based on prior tax returns. If you’re new to self-employment, you may want to save your money in an emergency fund instead.
You can’t miss something you don’t need – sick pay
It seems like employees get more benefits than the self-employed, but that’s not entirely true. While employers often provide multiple benefits to employees, self-employed people don’t need many of them. For example, self-employed people don’t need paid sick days.
Hourly employees need sick pay because they can’t make up for lost work later – they’re paid for their daily presence. When a virus wipes out an employee for a week, their bank account suffers. They need every sick hour they can get.
Unlike employees, most self-employed people can make up for lost days of work and can push out deadlines while they recover. When you’re self-employed, missing a day of work doesn’t necessarily mean losing a chunk of your paycheck. Your income might be prolonged, but it won’t be cut short.
Employee sick pay benefits are complex
Self-employed individuals aren’t missing out on sick pay. It sounds like a great idea, but sick pay is cumbersome to use. Most U.S. states have complex rules governing the accrual and use of sick days.
For example, a business in New York City with 4 or fewer employees isn’t required to provide paid sick time. However, a business with five or more employees must allow employees to accrue one hour of paid sick time for every 30 hours worked up to 40 hours. However, employees must wait four months (120 days) to use any portion of their sick time. In certain industries, employees must wait one year before using sick time and may only use two days at a time. If an employee makes $15/hour (minimum wage), two days of sick pay (at 8 hours each) would net them $240, and even less after taxes.
Freedom is worth the sacrifice
If health insurance and other benefits were stellar, there might be a reason to think you’re missing out. The truth is, unless you have existing medical needs that require consistent care or visits, you’re not missing out. Embrace the freedom of self-employment, including the freedom to be responsible for your own healthcare.