Self-Employment Guide: Know THIS Before Being Self-Employed
Getting a nine-to-five job that pays well is a pretty nice deal if we're honest. You know well enough that regardless of what happens, you’ll get your money when it's due. However, the problem with working a 9-5 job is that you're hardly in control.
You constantly have to be the person beneath “the man,” and you can hardly do anything besides complaining when certain things get thrown your way. The pay is good, but there are just too many other factors to which it pales in comparison.
If you know this, and you're thinking of exploring self-employment opportunities, then you've got to be the luckiest person on the planet. That's because here, we'll be giving you the most detailed guide to self-employment that you'll ever need.
Ready to learn more about self-employment? Let’s get into it!
What is Self-Employment?
Self-employment is a state where you work for yourself. Simply put, it means that you will not be in the employment of someone else. Instead, you'll earn from the business venture because it belongs to you.
To put it in perspective, the Internal Revenue Service (IRS) defines a self-employed person as one who meets one or more of the following conditions:
- You trade or carry out business transactions as an independent contractor or sole proprietor.
- You’re in the business for yourself, either full-time or part-time.
- You’re a partner who carries out trades or similar business transactions.
Apart from these conditions, the IRS also defines self-employed people as limited liability company (LLC) members or partners in a multi-member LLC.
Types of Self-Employment
The self-employed are classified as:
Freelancing means working as a contractual professional for multiple clients, companies, organizations, or bodies. While it involves working for others, you’re still the boss.
Clients only pay you per job or for the amount of time you spend working.
Freelancers have long been in great demand, particularly because of companies’ need to fulfill urgent business needs at attractive rates.
In the US, up to 57 million Americans are freelancing. And of this number, approximately 50% are millennials.
Apart from this, a significant majority of the labor force will be freelancing before the end of the decade.
As a freelancer (like many other self-employed people), you can determine several factors like your pay, work hours, work environment, etc. Essentially, you'll be working (and living) on your terms.
2. Independent Contractors
Another way to become self-employed is by being an independent contractor. As one, you won’t work in a company year-round, and you certainly don't have to be there every day.
Instead, you'll provide professional services based on your contract with the company. For example, if the company requires that you build a construction site for them at a certain rate, you'd do so because it's part of your contract with the company.
Independent contractors are often very skilled. Hence, companies would much rather keep them in a contractual relationship than pay them their skill’s worth monthly.
Several advantages come with being an independent contractor. One of the biggest is freedom. You don't have to report to anyone, and you work how you want to.
Besides, you can progressively build relationships with multiple companies to boost your profit.
3. Business Owners
Simply put, business owners control businesses' direct daily activities. To assist with the running process, you can choose to have a board of directors. Alternatively, you could hire or appoint a manager.
The management method you depend upon is entirely on the business's size and how complex it is to operate.
Often, business owners earn when their business is in profit. Other times, they earn a certain amount of money each month. However, this doesn't make them employees.
This type of self-employment is arguably the most complex of all three. The reason is that it often requires you to employ other people to oversee certain things for you.
A freelancer and an independent contractor can easily get things done for companies with skills. A business owner, however, might not have all the skills needed to run his company.
For example, you could be a skilled engineer. However, your accounting, marketing, or business development skills may not be top-notch. In such situations, you should employ professionals that can handle those business aspects for you.
Despite a company's size, a business owner has control over virtually everything. This applies even if one delegates some tasks to qualified professionals.
Best Ways to Start in Self-Employment
So far, we've covered points about the types of self-employed people and the meaning of self-employment. Now, let’s find out just how you can start your self-employment journey in 2021.
As you continue reading, note that self-employment requires a substantial amount of determination and hard work for you to succeed. With that in mind, here are the best ways you can start your self-employment journey this year:
1. Start a Blogging Business
Blogging wasn't always at the cornerstone of every business' content marketing plan as it is today. Before, it was simply an informal way for people to express themselves online.
So much so that some made (and still make) their sites private to have an online diary of sorts. However, a blog is now a platform to express yourself and connect with an audience that's willing to read your content or listen to you extensively.
Blogging involves publishing written content, videos, and pictures for an audience. There are millions of blogs worldwide, and as you might imagine, people make a lot from blogging.
How to make money with your blog
Here are the best methods you can use to make money from blogging:
#1 Sell eBooks
Despite video courses becoming popular, people still turn to digital books to learn. You can use that demand to sell sought-after books by different writers. Alternatively, you can self-publish one and use your blog to sell it.
Some of the most popular niches for eBooks include:
- Weight loss
- Self-help and motivation
#2 Offer sponsored posts
Businesses are always looking to get more customers, and you can use your blog to help them out in exchange for money. After sponsoring your blog post or podcast, these businesses tell you what they want from the deal.
Big businesses often give lucrative sponsorships. If you don’t have a large follower base, you could pitch to smaller ones. In either case, you can find these businesses from online networks or physical meetups.
#3 Become an affiliate marketer
Like getting a sponsorship deal, affiliate marketing with your blog is another way to make money. This time, you get paid for bringing customers or telling people about a business.
Affiliate marketing is a high-income channel for the self-employed. Typically, you’ll be given a link that you can put in your blog posts. When your reader takes action using it, you get paid a commission.
Before you get started, you should pick a lucrative niche. Some of the most popular ones are:
- Personal finance
- Money making
- Product reviews
The only thing left is to find a platform where businesses are looking for affiliate marketers.
#4 Use ads to your advantage
Putting ads on your blog is one of the easiest ways to make money since you don’t have to work so hard. You don’t create the adverts or make them convincing. However, you can:
- Earn when your blog readers click your ad: You should find a spot in your blog that compels people to learn more about the ad.
- Earn when the ad is displayed to readers: To find out how the impression an ad has on your blog, count how many times it was loaded.
The best niches for adds you should include on your blog to make money are:
- Consumer goods
- Tech gadgets
Google AdSense is one of the most popular platforms for bloggers to run ads. However, there are alternatives like Monumetric, Adversal, and lots more.
#5 Leverage memberships
If you’re a great salesperson, you can create premium blog posts for readers who pay for it. Of course, you could also have regular content for leads you’ve not yet converted or change your blog to only premium content.
Here are some of the lucrative niches to blog about when you want to start selling premium content:
- Making money online
#6 Organize virtual summits
Another way to make money quickly as a blogger is to host summits. It doesn’t require blogging experience, and you’ll only be responsible for organizing one.
Virtual summits are similar to webinars. However, they are more interactive and last for several days.
If you want to use this lucrative method to earn with your blog, you can either:
- Host live summits
- Sell pre-recorded summits
In either case, you should have experts you interview during a virtual summit. The professionals people want to meet up with at virtual summits are:
- Medical practitioners
- Cybersecurity experts
- Marketing gurus
- Software engineers
#7 Create job boards
While you want to take the self-employment route, others may decide to be employees. If you understand their needs, you can turn your blog into a niche blog and help them find jobs.
Turning a blog into a job board is a profitable way to make money because there are millions of job-hunters worldwide. The lucrative niches you can get into include:
- Engineering and construction
How to start earning from your blog
#1 Pick a niche
Your writings should focus on one or multiple profitable topics. Therefore, you should only start a blog in a niche that has money-making potential. You can check out established blogs in a niche or research your target audience to decide if the topic you pick can fetch you money.
#2 Get a web hosting plan
Every website on the internet – including your blog – needs web hosting. With one, you can post your web pages and blog content on the internet.
Bluehost is a hosting platform for building WordPress websites. The software powers over two million websites, and you can use it to get your blog up and running.
When you sign up for any of its plans, you get a free domain.
With 99.9% uptime, excellent customer service, an easy user interface, and reasonable costs, Bluehost is a pretty good way to start your blogging business.
#3 Install a blogging software
You can choose between various blogging software types out there. However, a cost-effective option is WordPress. Asides from its affordability, WordPress is highly customizable, and you can add plugins to modify your blog.
You can download WordPress from its official website.
#4 Design your blog with themes
One more thing you'll need while getting your website off the ground is an excellent theme. The theme is the interface with which your customers interact with your website.
It defines your essential colors, text sizes/styles, and many other things. Among others, your theme should be good looking and responsive to mobiles.
With StudioPress, you can rest assured that all these would be easily taken care of. Why? Well, Studio Press has a plethora of themes that will fit into just about any type of blog you want to set up across any niche.
Divi is another great platform for WordPress themes and plugins. In that regard, it checks everything off the list, from mobile responsiveness to aesthetics.
However, beyond that, it also serves as a plugin that can help you customize your website with considerable ease. You don't need to know CSS, HTML, or coding in general to use the platform.
Everything you'd need to do would be handled with such easy actions as the drag and drop. That is, if you want a certain widget somewhere, you can merely click on it and drag it where you want it to be.
While you need a license to enjoy Divi themes, the platform has a free trial version.
Alternatively, you can use ThemeForest to find the perfect themes for your blog. Signing up to the platform is free. However, you have to pay for the themes on it.
Themeforest regularly updates its theme and template collections. So, you can find creative ones there.
#5 Write your first blog post
Once you have everything set, you can go ahead and start making money from your blog.
2. Create and Sell Online Courses
Virtually everything in our world can now be done online, including learning. As people spend more time on the internet, there has never been a better time to create and sell courses.
But besides generating revenue, why should anyone seeking self-employment opportunities bother with creating and selling online courses?
Benefits of creating and selling online courses
#1 Online courses are a source of passive and active income
From YouTubers to podcasters, authors, speakers, and coaches, selling online courses has attracted different people. The most exciting bit is that you can create one course that people will buy over and over again. And there’s often no ceiling to the students that can enroll.
The essential bit is having the skill, passion, or content that people want to learn about.
#2 Online courses can be your way of getting customers for your business
For some self-employed individuals, creating and selling an online course isn’t the end-game. Instead, you can flip the model and use the course to convince your target audience of a product or service.
#3 Online courses can be a way to retain customers
As a self-employed individual, you can’t afford to let any customer go. So, what can you do?
Create a course that helps people learn more about you, your product, or a service!
Imagine you’re a software developer that makes productivity tools. Aside from the money you can make from an online course, creating and selling one can help your customers understand how to use your tools.
If they understand and like them, they can stay with you or even refer them to others.
How to get started creating and selling online courses
#1 Choose a course topic
The right topic to create an online course around is one you know well and are interested in teaching. With a target audience in mind, narrowing down your options becomes easier. You can launch as many topics as you want.
#2 Validate the demand for your topic
It sucks to spend much time creating a course you think people want only to find that there’s no demand for it. Therefore, you can:
- Pre-sell the course or launch a pilot course.
- Build a list of people that want to buy your course by asking.
- Do market research on the marketability of your course.
#3 Create the content and plan the structure
Once you’ve tested the waters, you can start creating your course content. The content will likely be a collection of videos. So, you should have an outline and know the tools of the game.
#4 Host your course
Your course needs to be on a platform where students can access it. You can:
- Self-host (create a website and set up a payment system for it)
- Use course marketplaces
- Leverage learning management systems
While self-hosting can be expensive, online marketplaces control just about everything. Learning management systems offer the best of both worlds, and one of our top recommendations for hosting online courses is LearnWorlds.
LearnWorlds is a software that helps you create, sell, host, and promote your online course, all on the website. The software allows you to customize the course player and extract transcripts while building a course.
It also provides you with access to run course tests and assignments and brand digital certifications. And when you’re done creating, LearnWorlds can help with the marketing aspect.
While LearnWorlds requires you to select a plan, you can request a 30-day free trial of the software.
Alternatively, you can use Thinkific to host, create, and design an online course.
Thinkific is customizable to keep students stay engaged with your course. You can use your domain name, select a design, and go beyond HTML and CSS to make it captivating.
On the marketing side, you can use the software to attract a wider audience with free trials, targeted campaigns, and upsells or by integrating it with other marketing apps.
Another tool that’s suitable for hosting online courses is Teachable. Aside from its hosting services, the software allows you to create content, integrate other tools, track your numbers, create sales pages, market courses, and interact with students.
When you choose a plan, you get access to all Teachable features. However, you can also use the 14-day free trial.
#5 Fix a price for the course
The price of your course can make or mar your effort. If it’s a tad above your audience’s budget, no one will buy it. If you price it low, you’ll be short-changing yourself.
The optimum price should reflect the value of the course.
3. Become a High-Paid Freelancer
Generally, a high-paying job is any gig that pays miles above the average hourly rate, which is approximately $11.34 per hour in the US.
But what high-paying freelance gigs can one get?
Niches where freelancers can make jaw-dropping income
#1 Software development and programming
Software developers code, design, test, deploy, troubleshoot, and debug software programs.
As an in-demand technical skill, the average income of a freelance software developer in the US is $54.57 per hour, according to ZipRecruiter.
A programmer, on the other, is only involved with the coding aspect of a software project. Still, freelance programmers in the US earn an average of $34 per hour.
#2 Web development and design
A web developer creates web applications and websites using programming languages, web technologies, and other frameworks. Similarly, a web designer creates the look and layout of web applications and websites.
Depending on whether you work as a front-end, back-end, or full-stack developer, you can earn $5 to $34.72 per hour in the US as a freelancer. Likewise, an average freelance web designer earns $26.83 per hour.
#3 Copywriting and content writing
While a copywriter is a person paid to write words that instigate action (copy), a content writer creates engaging content online.
In the US, a freelance copywriter can earn $26.80 per hour on average. In contrast, a freelance content writer can earn $24.68 an hour, on average.
#4 Graphic design
Graphic designers make visual concepts by hand or computer. As a creative genius, you can earn $26.75 on average in the US freelancing your graphic design skills.
#5 Public relations/ social media marketing management
As more companies take their marketing strategies to social media, the need for social media managers is skyrocketing.
You can earn approximately $24.44 an hour as a freelance social media marketing manager in the US. However, this average income depends largely on the city you live in.
#6 Video editing
As the name implies, a video editor’s job is to manipulate and rearrange videos and create new work. It’s a post-production job.
In the US, freelance video editors make an average of $54,470 in a year. This amounts to $26 per hour. The top video editors can get as much as $84,000 a year, while entry-level editors make $35,000 or less in a year.
An accountant maintains financial transactions and records. These tasks may be broken into small ones like preparing balance sheets, handling ledger accounts, creating financial reports, among other duties.
To earn as a freelance accountant in the US, you mustn’t have a bachelor’s degree or get a PCA certification. However, you could make more money if you have them.
Freelance accountants earn $38 per hour in the US.
#8 Video game programming
Like software developers, video game programmers plan, design and build software by writing codes. However, this time, you’ll be programming games for mobiles, computers or consoles, not websites.
Video game programmers code in C# and C++. In the US, they make an average of $27 per hour. However, the top 10% earn as high as $40 per hour.
How to earn big bucks as a freelancer
If you decide that this is the path you want to take to be self-employed, then you should:
#1 Focus on your results
In the end, people are not as much interested in what you do as in the results or solutions you provide. For example, clients don’t care about how many drafts you wrote as a freelance copywriter. The final one is all that matters, and you should make it the best.
#2 Get gigs from the best platforms
Even if you’ve got the best skills in your niche, you still need to find gigs that pay for your competitive advantage.
Fiverr is one of the leading marketplaces for freelance services. Launched in 2010, you can get just about any gig on the platform.
The marketplace also has a truckload of clients, and many freelancers make six figures on it. It’s free to join and use Fiverr. However, you need to create a gig and sell your value to make money on the platform.
Upwork is an alternative marketplace where freelancers can get fast, high-paying gigs. From startups to Fortune 100 companies, Upwork attracts talent to deliver services for different businesses.
Again, it’s free to join Upwork, and the platform’s matching and search capabilities can alert you on top projects.
Alternatively, you can use Solidgigs to get freelance jobs. The company’s unique selling point? They curate, filter, and pick out gigs for freelancers. There’s no eligibility test or fee to get started on the platform.
We also recommend FlexJobs when looking for remote and flexible opportunities. Therefore, it’s also home to a significant number of freelancers.
Flexjobs members get unlimited access to any job, email alerts, job-search tips, and skills-testing to certify their skills to potential employers.
Its flexible plan allows you to try to pay for a weekly to a yearly subscription. Alternatively, you can cancel your subscription for free within 30-days of renewing one.
#3 Ask for reviews
Highly paid freelancers have recommendations, feedback, and reviews to show for their work. With them, they can attract more clients and even increase their rates.
4. Launch an Online Store
eCommerce is expanding rapidly, and more than 1.8 billion people search and purchase goods online. Considering the booming industry, starting an online store can be your path to self-employment. But what are the prospects of taking this route?
Benefits of starting an online store
#1 Substantial income
If you set up an online store properly and employ the best marketing strategies, you can make what you would from a booming in-store business.
As with other online businesses, it is easy to manage an online store anywhere and anytime. Therefore, owning one is a great home-based business to start if you want to be self-employed.
Online stores are generally much cheaper to open than physical stores. You only have to focus on running the store and marketing instead of paying building rentals, hiring employees, or decorating.
With the right marketing strategies, an online store is open to the world. As long as your target audience is online, you can make them your customers.
How to get started launching an online store
#1 Choose a niche
Your niche determines your sales, whether you’ll have return customers, and the effort you need to put into launching an online store. Take out time to think of a strategic one.
#2 Pick between dropshipping or holding products
With dropshipping, you don’t hold inventory but pay someone to do that. Holding your products means you need a warehouse, and you get to be in control of delivery.
#3 Create a brand
Pick a catchy, original name for your brand and then register your domain name. Some companies register domain names for free, but the majority charge a fee to get it done.
#4 Create a store
Shopify is an eCommerce platform where anyone can set up a store and sell products. With it, you can sell products on social media, mobile, pop-up shops, etc.
The cloud-based platform also helps you manage payments, shipping, inventory, and your products. More importantly, it’s hosted, meaning you don’t have to maintain servers.
Alternatively, you can use 3DCart. 3DCart allows you to build your desired online store where customers can visit and buy products. You can get several features like SEO, access to web design experts, real-time shipping, online content management system, payment processing, etc., in this software.
Zyro is another excellent platform for creating e-commerce stores. You can use it to build an online store, manage your inventory, handle payment, manage shipping and delivery, etc.
We also recommend Wix as a website builder for e-commerce. From managing payments to designing your store, promoting products, and handling various business aspects, Wix eCommerce offers just about everything to launch an online store.
(v) Implement your marketing strategy: With everything in place, you can start marketing your store online and offline.
5. Host Paid and Free Webinars
Webinars became popular in the late 20th century and have been used as a tool to reach many people at once.
Like an in-person seminar, they last for 30 to 60 minutes, within which marketers, teachers, bloggers, or content creators add value to their target audience.
If you chose to become self-employed, here are the benefits of hosting a webinar.
- Position you as an industry expert: Whatever reason your attendees decide to join your webinar, they do so to learn from you. They trust you’ll deliver valuable information. So, webinars put you on a virtual pedestal.
- Create business relationships: Webinars allow you to meet up with more prominent brands and startups. Hence, you can use them to pitch new ideas, get partners, or conquer new markets.
- Make you understand your target audience better: You can understand your target audience’s pain points and desire through a webinar.
- Increase brand awareness and customer base: If you have several people joining your webinar, you can use it to convert leads and speed up your sales process.
You can take webinars as a product and make money from them or use them as a means to an end.
How to get started hosting webinars
#1 Pick your team and define your goals
Before you get started, ensure you know exactly what you want to achieve with a webinar. It’ll determine every other thing you do.
There are three primary players in every webinar:
- The presenter
- The organizer
- The assistant
Depending on your goals, the roles of each player may also overlap.
#2 Choose a topic and format
The popular webinar formats are:
- Single speaker
- Panel discussion
- Interview format
Keep your target audience in mind when choosing a topic and hosting a webinar. What are they curious to know that could also add value?
#3 Create an outline and develop your webinar content
Your webinar should have an introduction, body, conclusion, and Q&A section. At this stage, you’ll also need to create engaging slides that include a title, agenda, statistics, recap, and CTA slides.
You also need a profitable webinar sales funnel.
#4 Pick a webinar solution
You need a platform where people can visit to register and watch your webinar. One platform we recommend is WebinarJam.
WebinarJam is a cloud-based software that allows you to connect with 5,000 people in a single webinar. The platform allows up to six presenters. Therefore, you can host a webinar yourself or have a roundtable of experts.
WebinarJam offers features for seamless webinar hosting. Recordings are automated, schedules are flexible, and you can design the registration page from scratch.
The platform also allows attendees to take instant action, fill out surveys, watch video injections, and lots more.
Demio is also a solid choice. It’s a webinar software for live, series, hybrid, or automated webinar events. The platform works on desktop and mobile, making it easy for attendees to register and attend your webinar.
It allows interactive polls, sharing contact, private and public chats, automated recordings, and integrations with marketing tools.
6. Start a Podcasting Show
If you’re not looking forward to becoming an employee, you can also make money from podcasts. In the US, podcasting is a popular pastime, and there are approximately 88 million people that listen to podcasts.
So, it’s no surprise that podcast hosts make approximately $41.96 an hour on average in the US.
How to make money podcasting
#1 Become an affiliate marketer or advertise a product or service
On your podcast, you can mention a product or service and give discount or affiliate links to them. From each sale, you’ll then receive a cut. Alternatively, a brand or company can sponsor your show.
#2 Coach or become a podcast consultant
You can offer your expertise to established or upcoming podcast shows for a fee. The consulting industry is booming, and you can easily learn how to start a consulting business for podcasting.
#3 Sell your business
Starting a podcast show can also be your way of making extra sales income or testing business ideas. Whether it’s courses, books, physical products, premium content, or events, you can make sales from your podcasts.
#4 Get donations
Your listeners can financially support you if you ask them to. Plus, as long as they love your podcasts, they’ll have no problem giving back.
Tips to get started podcasting
#1 Get your toolkit
You need a platform to start podcasting, and Buzzsprout is a software that helps podcasters reach millions of listeners on Spotify, Apple Podcasts, and Google Podcasts.
It makes publishing episodes easier, as all you have to do is upload an audio file and schedule when you want your podcast to be released.
Buzzsprout filters audio files, adds transcriptions, provides statistics to track your progress, and lots more.
#2 Create several drafts and pick the best
People don’t want to hear interruptions and interjections. So, only publish a free-flowing episode.
#3 Have an intro and outro music
A song can spice up your podcast and fill in that awkward silence between your slides.
#4 Keep it short but detailed
Cut out the unnecessary parts in each episode. If 20 minutes of great content adds value to your customers, that should be your podcast’s length.
7. Become an Influencer on YouTube or Instagram
YouTube and Instagram are two platforms that have millions of daily users. Hence, you can become self-employed by influencing what those users click, watch, or comment on.
With 10,000 to 100,000 followers on Instagram, you can make about $200 for each post on average. On YouTube, your videos can earn you 6 to 12 cents per view.
In either case, you can make money by:
#1 Working with brands on sponsored posts and videos
Brands barely struggle to maintain a social media presence. Hence, they have little say on these platforms. As an influencer, you can have them sponsor your posts and videos for a 30 to 40-second shoutout. Alternatively, you can create content about the brand.
Having a large following is essential, but having an audience that trusts and engages with your content.
#2 Becoming an affiliate
Affiliate marketing is somewhat similar to getting sponsorship from a brand. However, this time, you’ll be more interested in generating revenue through sales for a brand.
Affiliate marketing is often done with a trackable link. When customers take action, you’ll get a commission on the sales. You can explore marketplaces and affiliate platforms for the best affiliate programs available.
#3 Licensing your content and sell products
Things go viral all the time. So, if you have a picture or video in high demand, you can have people pay to use it.
TV outlets, news sites, and other creators are among the top bodies that can pay for your content. Often, you’ll have to list them in a marketplace to get exposure.
Tips to get started as a YouTube or Instagram influencer
#1 Pick a niche
First, decide on a field you want to focus on. Your niche should be interesting and one you're somewhat an expert in. For example, you can decide to debunk myths on your YouTube Channel or post cooking recipes on your Instagram account.
But who says you have to pick one or the other? Go for multiple niches if you're up for it! The profitable ones are tech, fashion, photography, food, traveling, fitness, beauty, and lifestyle.
#2 Understand your audience
In the end, everything you do as an influencer is for your viewers. You should know who your target audience is and what makes them tick. That way, you can produce content that’s relevant and helpful to your target audience.
If you're not sure, you can ask, organize surveys, and create quizzes.
#3 Create and market your content
The more engaging and relevant content you put out, the greater your chances of making money as a YouTube or Instagram influencer. Therefore, you need a content strategy and schedule.
- Content length – 3 minutes, 30 minutes, etc.
- Content-type – images, videos, etc.
- Post frequency
Take gaming tech influencers, for example. To make money and increase their following, they have to follow tech trends and make gamer-tailored content.
But you hardly see them making lecture-long videos every 12 hours. The strategy of most influencers is to allow their audience time to digest their posts and videos.
Advantages and Disadvantages of Being Self-employed
The idea of calling the shots and becoming self-employed appeals to a lot of people. However, don't quit your soul-sucking job or forget about job hunting just yet.
Since self-employment is only for a few and not everyone, we've weighed the pros and cons to help you decide.
Advantages of being self-employed
1. You get the freedom and control what you've always desired
One of the perks of being self-employed is the flexibility it affords. You don't have to work in a single industry or take on boring, mundane tasks each day. For example, some freelancers hone multiple skills and get several gigs from them.
When you're self-employed, the shackles of restriction are off, and you decide your work-life balance. However, you need to be careful not to ruin your earning power.
2. You get to be more independent
As a self-employed individual, you can do your job without seeking approval or validation. So, it's fine to work a flexible schedule and take breaks (or vacations). In turn, this can provide you with more family time or time to develop new habits.
Take a construction engineer, for example. As an employee, she needs to ask her boss for a raise or run new designs through him.
However, as an independent contractor, she can charge some clients more than others (because she wants to) and implement a design she feels works for a project.
3. You can make big bucks
It's no news that you can earn more per hour when you work for yourself than under a boss.
Of course, you can get jobs that pay just as much as whatever income you can make being self-employed. However, the real difference is that as a self-employed individual, you also work less.
4. You have higher income security
The self-employed don’t have one money channel like employees. On the contrary, self-employed individuals generally have more than one client or customer.
For example, bloggers have thousands of readers, online course teachers have hundreds of students, and independent contractors can work for several companies.
This implies that their hopes aren’t on one client living up to their end of the bargain. If they lose a client, or one doesn’t pay, others can cushion the setback's effects.
Disadvantages of being self-employed
1. You won't enjoy the free benefits of being an employee
While self-employment offers you complete freedom, the 9-5 grind also has its upside. For example, if you work for a reputable company that cares about your health, you should have maternity or paternity leave, paid holidays, and sick leaves. Unless you or the government gives these benefits, you can’t enjoy them as a self-employed person.
Other freebies that come with a 9-5 job include workplace pension and easier mortgage or loan applications. If you're self-employed, you have to take out the money as a pension and prove that you make a steady income to be granted loan or mortgage applications.
2. You have to handle your taxes and finance
Self-employment doesn't protect you from paying a portion of your income as tax. On the contrary, you have to take it more seriously and handle the paperwork all by yourself. Asides from getting clients, you also have to figure out the right amount of tax to file, which can be time-consuming.
In contrast, a 9-5er doesn't have to worry about paying the right amount as tax or the process it entails. Usually, all that is done automatically.
If you decide to become self-employed, you can get an accountant to handle your tax for you. However, you can also do it all by yourself, and we'll show you the step-by-step process.
3. You can experience periods with few opportunities
As a self-employed individual, there’s no telling where your next customer will come from. While there’re platforms to find opportunities, it can be difficult getting consistent tasks.
For example, business owners can land a client in January. When the contract ends in March, there’s no guarantee a new client will show up. This is unlike being an employee where you get new tasks, as long as you’re still contracted to your employer.
How Do I Qualify to Be Self-Employed?
As we've established, the barriers to self-employment are far fewer than those to employment. In truth, most of them depend on you changing your mindset or environment and upskilling.
Here are questions to find out if you qualify to be self-employed:
1. Do you want to become a sole proprietor, partner, or independent contractor?
As we've established, your intentions should be to get into business for yourself. Otherwise, you’re still an employee.
2. Are you self-motivated?
Another key trait that makes you up for self-employment is the ability to create plans, set goals, and follow through on them without requiring external drive.
As a self-employed individual, no one will schedule appointments or push you to do things. You'll need to muster up the willpower to take responsibility and act, even when you don't feel like it.
For most people who have spent some time as employees, being self-motivated is one of the toughest adjustments they’ve had to make.
3. Are you flexible?
When you start your business, become a freelancer, or take on independent contracts, you won't have clearly defined duties. Being self-employed will require you to adjust to unforeseen issues.
Take a freelance software developer that can work from home on her laptop as an example. She stands a greater chance of being successful than another who can only get things done from a desktop computer at an innovation hu(ii)
4. Are you a confident salesperson?
Taking the driver's seat and becoming self-employed is for people who know how to put themselves out there. Why? Because it's an important skill to land clients.
Usually, there's a clear-cut line between employees that get new clients and those who create products or provide services.
However, in self-employment ventures, the lines overlap. You need to close clients, and there's no telling how easy or challenging this can be.
Some clients will have unrealistic expectations, put you out of pocket, or challenge your expertise. Only confident salespeople can back themselves in such situations.
5. Are you a risk-taker?
Leaving the job hunt or your secure job isn't the safest thing to do. You have to believe in yourself and be ready to face challenges. For example, there's no guarantee that your product or service will be in demand in a year as a business owner. There's also no certainty that clients will pay on time.
Risk-takers qualify to be self-employed because they have a knack for following their guts, which is a critical skill when you're your boss. This intuition pays off for most self-employed folks.
Can You Be Employed and Self-Employed at The Same Time?
Employment and self-employment aren't like day and night. If you're willing to take up two jobs simultaneously, you can be both employed and self-employed.
Take a recent graduate in the US, for example. One can work as an accountant during a 9-5 job and take up a fishery business after work hours.
Benefits of being employed and self-employed at the same time
Being an employee and a self-employed individual has its benefits, which includes:
1. You'll incur less risk and more financial security
A job in hand doesn't mean you can't be sacked on a wimp. Your business could also suffer hiccups. But if you combine both scenarios, you'll at least have something to fall back on and be able to deal with setbacks better.
2. You can make more money
This is the most significant reason people decide to be employed and self-employed at the same time. Your tax burden also reduces when you take on both worlds.
3. You'll get a sense of fulfillment and happiness
If you're self-employed, chances are that you're doing something you're passionate about. This, alongside a stable job, provides a sense of happiness you can't get from choosing one option over the other.
Challenges involved in being employed and self-employed at the same time
Nevertheless, being self-employed and employed could pose the following challenges:
1. You'll have less time for other things
Even if you're a part-time employee, combining that with being self-employed takes hours off your week. If you compare these work hours, you'll find it's less than when you stick to either being employed or self-employed.
2. You might find it difficult to give both jobs your best
If you use up your energy as an employee, you won't have anything left to take on your business. For example, a self-employed graphics designer that works as an accountant during the day can't attend to her Upwork clients simultaneously. If she does, her accounting job will suffer.
Tips to be successfully self-employed and employed at the same time
1. Ensure you apportion your time properly
Avoid shifting between both worlds. Instead, draw up a schedule that'll allow you to give your business and job 100% of your effort.
2. Make sure you don't break your non-compete clause
Employers often include a non-compete clause in their employees' contracts. With one, you can't take the contacts, information, or skills of a job elsewhere.
If you're going to be successfully employed and self-employed, you'll need to be legally covered.
3. Ensure you pay both taxes
The US government is stiff on taxes. Therefore, you shouldn't use your role as an employee to evade your self-employment taxes.
While your employee tax will be handled automatically, you'll need to file your self-employment taxes yourself.
4. Verify that your self-employment business doesn't affect your role as an employee
The US case law gives an employer the power to restrict secondary activities if you represent their business. For example, a law firm can restrict a partner who starts a law clinic.
The safe thing to do is inform and consult with your employer to avoid interest conflicts later on.
Business Structures For The Self-Employed
One of the crucial decisions to make when you agree to ply the self-employment route is your desired business structure. It affects your liability, the paperwork you have to fill, and lots more.
Like other things in the self-employment world, there's no one-size-fits-all for business structures. You have to choose between:
1. Sole proprietorship
This is the simplest business structure for the self-employed. As a sole proprietor, you are the company. There are no partners or members. You operate, own, and control your enterprise.
Given its simplicity, a sole proprietorship is the most common business organization.
In the sole proprietorship structure, the business's income and expenses are added to your personal tax return. Therefore, any income, loss, or liability you incur are yours. This also means that you can pay taxes using your social security number.
Asides from paying self-employment taxes annually, you also have to make tax payments on your income every quarter.
One of the glaring challenges of this business structure is that there's no legal protection for your enterprise. For example, if your business goes bankrupt, you'll have to pay debts from your personal income.
If you get a divorce, your spouse can ask for a portion of your business as a form of settlement.
As the name suggests, a partnership refers to a business structure that is owned, controlled, and operated by more than one person.
This structure improves on the lapses of a sole proprietorship. Therefore, partners share the profits, losses, and liabilities among themselves.
However, the entity isn't separate from its owners. If anything happens to the business, these partners have to rally around and save it.
Partnerships don't pay income taxes. Instead, they file a report of the income, gains, losses, and business deductions. After that, the partners report their profits and losses on the personal tax return.
3. Limited Liability Company
An LLC is similar to a partnership. It includes members, and these individuals have shared responsibilities, liabilities, and assets. However, in an LLC, each member's liability is limited, and the law sees it as separate from its owners.
For example, you can start an LLC with three members. These members can't go bankrupt because the business is failing. However, they can share the liability in three ways until a level they decide in their contract.
An LLC is an entity that the state statute creates, and they vary among states. For example, some states mandate you to dissolve the LLC you started within 30 to 40 years.
LLCs can have unlimited members, and they have to pay the complete FICA tax. Like before, this tax can also vary by state. Members have to make estimated quarterly payments.
Corporations are independent legal entities, and their business structures are more complex than others. A corporation has liability protection for its owners. Therefore, you won't be putting your assets on the line if you pick this structure.
Corporations can be grouped into two classes, namely: S corporations and C corporations. Due to the downside of paying double taxes, C corporations tend to be less attractive to the self-employed.
S corporations, on the other hand, offer tax benefits and retain liability protection. Their owners aren't self-employed like partners in a partnership. They don't pay self-employment taxes but receive a share of the business's income.
If you start an S-corp, the company can issue common stock. For experts, this can improve the business's ability to make capital.
On the downside, S corporations usually require the owners to handle a lot of paperwork. If you pick this business structure, the tax service and legal costs are higher than other structures.
How to decide on a business structure for the self-employed
When it comes down to picking any of the four structures, here are the factors you need to consider:
Business structures aren't the same, especially on how they are taxed. For example, the tax options of partnerships are different than those of sole proprietorships.
Therefore, pick a structure that can help you minimize your taxes.
Business goals and future needs
When you decide to become self-employed, it's easy to follow the proprietorship lane and not look back. However, consider the years ahead and whether you want to scale your self-employed entity up.
For example, you can start a farm and have a partner. However, if you see the business expanding to feed the nation, a partnership structure won't cut it for you. It could be limiting for the goals you set.
However, if you don't see the farm scaling up in ten years, a partnership structure could be just what you need
You also need to ask yourself to what extent you want to be protected from liability.
If you're big on paying less tax over the potential of business liability, then a partnership or proprietorship could be the way to go. Otherwise, you should consider an LLC or S corporation structure for your self-employed entity.
Formation and administration cost
Some business structures are easier to start than others. Therefore, consider the effort, time, and money you'll put into record-keeping, handling paperwork, and starting the entity before you pick a structure or consider whether getting online legal services is a better choice.
Self-Employment Tax Filing Requirements
Your self-employment tax is a separate tax on top of others you may owe. It is paid for Social Security and Medicare. While the social security aspect goes towards survivors, disability insurance, and the elderly, medicare offer hospital insurance.
Here are the things you need to file your tax as a self-employed individual:
1. Taxpayer Identification Number (TIN)
This is a nine-digit number that is unique to every self-employed individual, business, or entity. Typically, your TIN is an employer identification number (EIN) or a social security number. Without either, you can't file for tax returns.
If you don't have employees, then you can use either your EIN or social security number. However, partnerships, corporations, and LLCs that have employees must use an EIN to file for tax.
The IRS issues TIN, and you have to complete a form to decide if you need one.
2. Information returns
This refers to documents that an individual, corporation partnership, or LLC uses to report transactions to the IRS.
The tax filing documents are available on the IRS site, and they vary among the different entities. For example, you should use Form-K1 to report your share of a partnership or S corporation.
However, you should report the income and expenses of your sole proprietorship on the Schedule C form. Then, fill it with Form 1040.
3. Business records
When filing self-employment taxes, you should have the paperwork for your annual income and expenses. It'll help you get the right rate, so you don't short-change yourself on your net self-employment earnings.
How Do The Self-Employed File Taxes?
Here's the step-by-step process of paying self-employment taxes:
1. Determine what entity you run
Are you an LLC owner, sole proprietor, independent contractor, partner, or S-corporation member? Before you begin paying your tax, be clear on the class you or your business falls into. It'll make the entire process easier.
Take the owner of a tech LLC, for example. If he mistakenly files self-employment tax as a proprietor, he can be penalized by the IRS.
2. Calculate how much you owe
You must pay self-employment tax if your business makes a net profit of at least $400. However, the exact amount you're liable to pay depends on the self-employment tax rate.
Apps are available to help you calculate how much taxes you owe. However, you could also do this yourself or seek out an accountant. Generally, if you're just getting started as a self-employed individual, it's wise to have an expert help you out.
Note that you shouldn't use any expense you incur (even to employ an accountant) to calculate your self-employment tax for that year.
3. Select your payment method
Once you figured out how much you need to pay, the next step is to fill the form and pick a payment method. You can pay your self-employment taxes through the IRS website.
However, to complete the process, you'll need to register for a pin. This could take a few days or weeks to process. Therefore, if you want to use this method, ensure you start the process on time.
Alternatively, you can make payments through your mail. However, you can't use cash to get it done. Instead, the IRS (and post office) will accept a cashier's check or money order.
4. Pay your taxes
The quarterly estimated taxes are due on April 15, June 15, September 15, and January 15 of each month. On the other hand, the annual self-employment tax return is due within a tax year.
Tips that make paying self-employment tax easier
Have a business plan and keep records
If your business ever has to go through an audit, it'll be a lot easier if you have these statements in hand.
Picture you work as an independent contractor for a tech company. When you were an employee, you were required to pay only the employee portion of Social Security and Medicare.
Now, you'll be paying for both the employee and employer sections, which amounts to 15.3% of your net earnings.
You could be pegged as a tax evader if the tech company or the IRS runs a background check and finds out you've not been filing taxes.
Set aside your income monthly
Now that you know you are liable to pay part of your income to the government, your safe bet is to keep some earnings every month for it.
Depending on where you live, you might need to save more for self-employment taxes.
Pay on time
The system is designed to roll-over your taxes if you can't pay them in a particular tax year. At the moment, the IRS places a 0.5% to 25% fine. This failure-to-pay fee is calculated from the initial due date to when your balance is full.
For example, imagine you only heard about self-employment taxes one year after establishing a partnership. You don't start paying when you figure it out.
Instead, the IRS will charge you for unpaid fees in the previous year, which can add up to large amounts.
File more estimated taxes at the beginning of the year
As the year progresses, businesses and independent contractors experience a reduction in revenue and income. If you've paid most of your estimated taxes in the early months, you'll have one less thing to worry about.
Tax deductions that the self-employed can benefit from
The tax burden can be a lot for some self-employed folks to pay at once. Luckily, there are deductions you can make when calculating your self-employment tax to cushion its effect. These deductions are for:
The cost of using any workplace as a self-employed individual can be deducted from your tax calculations. However, you have to defend this deduction. For example, some people have a diagram of their workplace with measurements if they're asked for it.
Internet and phone bills
You can also deduct the expenses for internet, fax and phone bills from your tax calculations. In this case, it's key the bills are directly associated with your business.
For example, if you use one phone for personal use and business, you can't exclude its bills from your calculations. However, if you run a website for your business, you can keep the expenses out of your tax calculations.
In this case, the meal expenses you can deduct are those of your businesses. For example, any cost you incur for entertaining a client, during a conference, or business travel is tax-deductible.
Generally, you'll want these meals not to be lavish. Otherwise, you can only deduce 50% of their expense from your tax.
You can deduct premiums you pay for long-term care, dental health, and general health. Also, the premium that covers your dependents, spouse, or children younger than 27 is tax-deductible.
You can find out how to calculate the health insurance deduction from the IRS publication 535.
For you to remove travel expenses from your self-employment tax, your trip should last for one working day. It should also be for sleep or rest and usually away from your workplace city. More importantly, there must be a purpose for embarking on the trip that relates to your business.
For example, you can take out the travel expenses incurred when you go to another city to meet new clients. Your journey to learn a new skill that relates to your self-employment can also be termed tax-deductible.
Like before, you should have records and receipts of the activities and expenses if the IRS requests them.
Like travel expenses, you can deduct the expenses you incur when you use your vehicle for business. The vehicle use deduction is calculated using a mileage rate that the IRS sets. For example, this rate is 56 cents per mile in 2021.
The mileage, trip date, and travel purpose are the most important records to keep when calculating the deductible vehicle use.
Your education expenses are only deductible when they relate directly to improving your self-employment status or business.
For example, if you're a manufacturing contractor, you can deduct the cost of taking project planning and control courses. However, a class on how to cook your meals isn't tax-deductible.
Every self-employment venture requires you to market and advertise your skills, products, or services. Therefore, the IRS allows the self-employed to deduct such expenses from their tax.
For example, if you pay for Google ads to get more organic traffic from blogging, your ads' expenses are tax-deductible.
Do I Need to Register as Self-Employed?
At the moment, no agency mandates that you register as self-employed. You may include an EIN when writing invoices and register with the Internal Revenue Service. However, doing that isn’t mandatory.
Nevertheless, if you run a business, you need to meet any business registration requirements in your city, state, or country.
For example, you have to apply for an EIN, register your business name, and get a business license in most US states.
How to get a local business license
From one-person proprietorships to corporations, every business owner needs a license. They are location-specific for tax-related reasons and to ensure the safety of the region.
For example, local regulators can allow you to start a mining business in a state. However, you may be restricted to the outskirts and not the residential areas.
To apply for these licenses, head over to your state, city, or county's website. Often, you'll find the business the information you need under the finance department pages.
Alternatively, the US. State Business website and SBA Business Resources website can help you understand and apply for licenses and permits.
How to register a business name
If you operate under your name, you don't have to register a business name. For example, real estate contractors conduct business with their first name, and government agencies don't object to this.
However, if you want to go by ‘Harry Real Estate Consultants,' you have to register your name.
In general, you register your business name with your county clerk. You could either do this online or in-person.
Ready to Gain Financial Independence by Being Self-Employed?
Becoming self-employed is a reality. People around the world make money on their terms and live the dreams of being free.
But being your own boss is a rollercoaster ride. There'll be highs and lows, challenges, and wins. But if you're convinced it's for you, you just need to stick to the process.
First, decide on a type of self-employment. Next, pick a self-employment method you can succeed at.
Finally, put everything into practice!