More people than ever in the UK are choosing to be self-employed. The number of self employed people in this country now accounts for 15% of the workforce and numbers rose by an impressive 133,000 last year in just 12 months. In 1975 just 8.7% of the British workforce was self-employed and pre-recession in 2008 this figure was 13%. So, are we gradually heading towards a workforce where self-employment is the norm for many?
Why do so many choose self-employment?
There have been many reasons put forward for the rise in these figures. Jobs in many industries have been scarce since the start of the recession in 2008 and self-employment is a better option than no employment at all. Then there are those working past pensionable age, choosing self-employment either out of a desire to keep working or the need to maintain an income. The government has also made it increasingly difficult to get employment benefit, pushing people towards self-employment instead, which of course creates much more positive unemployed statistics.
But is it worth it?
There’s no doubt that not everyone who is self employed is living the affluent dream. A lot of evidence suggest that self-employed people work longer hours and for lower rates than any other type of worker. The category of ‘self-employed’ is incredibly wide and includes everyone, from the business consultant on six figures, through to the cleaner struggling to make ends meet. So, there is no one size fits all for self-employment and it doesn’t work for everyone.
What are the benefits of being self-employed?
For most people, the biggest benefit is obviously the freedom. Setting your own working hours, not having to deal with a boss and being able to keep everything you’re paid are all serious advantages over working for someone else. Being self-employed can help to reduce stress levels – offices aren’t exactly the most calming places to be. It also helps to achieve a cheaper lifestyle, cutting down on commuting, ‘work clothes’ and provides more flexibility for working hours and location. According to insights from the Scottish Widows’ think tank, the Centre for the Modern Family, 53% of people become self employed for greater control over working life. This is often to accommodate other responsibilities, such as being a carer or looking after children – 46% of self-employed mothers have this motivation.
What about the disadvantages?
For many people, being part of a team in an office is what keeps motivation levels up so working alone, often at home, can be difficult. There is no employer to bear the cost of any equipment or time off – if you can’t work due to sickness or holiday then there is no back up and no paid sick days. Some people who are self-employed find the situation inherently stressful. Around 20% of the families of self-employed say they have experienced a rise in home stress levels as a result of the job change. This normally arises as a result of the financial pressures of a lack of job security, as well as the increase in hours that often comes with being self-employed. It may also become more difficult to get credit when self employed as lenders see it as a more risky status.
What do you need to think about to become self-employed?
Whether self-employment is right for you depends a lot on how you like to work and what you want your lifestyle to look like. If you’re going to take the leap then there are a few essentials to bear in mind.
Tax – Self-employed people must file self-assessment tax returns. This can be a big shock if you’re used to having very little to do with tax other than hoping for a refund once a year. Get a good accountant, keep records and make sure that you retain receipts for items that could be set off against tax payments.
Setup costs – what do you need to get your self-employed life off the ground? A personal loan (see www.solution-loans.co.uk/personal-loans) to cover a laptop, tools or equipment might be an essential early expense to help make sure you’ve got everything you need to get started.
Insurance – there are few protections for self employed people if, for whatever reason, you can’t work. Income protection insurance can at least provide some peace of mind that if something serious happens your rent and bills are covered.
Pension – without an employer to contribute to an occupational pension scheme you’re very much on your own when it comes to provision for retirement. Start a pension scheme early and make sure you pay in regularly.
A buffer – live frugally and put something aside for a rainy day so that you can be comfortable and enjoy the lifestyle, as opposed to constantly living close to your overdraft.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley