Self-employed vs employed: Differences between the two options
By Indeed Editorial Team
Updated 1 December 2022
Published 19 July 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
When considering a career change, people often think about the differences between being self-employed vs. employed. While some professionals appreciate the flexibility of self-employment, others prefer the stability provided by working for another company. The best option for you likely depends on many personal and professional factors. In this article, we discuss the primary differences between employment and self-employment and the pros of each.
Being self-employed vs. employed
Here are the fundamental differences between being self-employed vs. employed:
Being self-employed can have a significant effect on your income. In some industries in the UK, you have the possibility of making a greater income being self-employed than you would as an employee.
However, unless you have a strong client base, it's not always possible to ensure a certain monthly salary when you're self-employed. Some months might be more profitable than others, so it's a good idea to have a savings plan. Another factor to consider when you're self-employed is that you might have to regularly search for new clients or jobs, especially at the beginning of your self-employment. Finding new clients may take time away from more profitable self-employed tasks.
Related: Work From Home Jobs That Pay Well
Working for a UK employer means that you're paid when you go on holiday, are off sick or need to take maternity or paternity leave. When you work for yourself, these benefits are not automatic. If you're self-employed, you have to budget correctly for times when you might not be able to work.
If you're self-employed and paying Class 2 National Insurance Contributions, you can qualify for some maternity pay. However, this pay is not as generous as the benefits you'd receive if another company employed you.
In most cases, when working for a UK company, that company deducts your tax directly from your salary. However, when you are self-employed, you're often responsible for all your tax affairs. Consider contacting a tax professional to learn the best ways to manage your finances appropriately regarding taxation.
If you're employed with a company or organisation, you usually have tax and other deductions taken from your monthly salary. These often go towards your social security and pension, so you can automatically pay into your pension scheme the whole time you're employed. Many UK employers offer extra incentives to increase your pension pot by matching the extra monthly contributions you pay in. However, if you're self-employed, you have to establish your own pension scheme.
Getting a new mortgage on a home may be easier if you're employed by a company. Since professionals who are self-employed often have unpredictable incomes, mortgage lenders usually need additional assurance that you can pay your monthly bills. A good accountant or mortgage broker can assist with this and help you get a better deal.
Promotions and training
Working for an employer means you can work your way up the corporate ladder. When you work for yourself, there's no one to promote you, so it's your responsibility to find new clients or sign prestigious contracts.
In addition, many companies actively encourage their staff to increase their knowledge by sending them on training courses and helping them with professional development. You can still take part in these training courses or development opportunities when you're self-employed, but you need to find and pay for them yourself.
Some employers give their staff benefits and bonuses on top of the basic salary, such as quarterly bonuses, commissions on sales, free childcare, gym memberships or private health care. If you're self-employed, bonuses and benefits come out of your business's revenue. If you're used to receiving extra benefits from your employer, you may want to factor the costs of these benefits into your self-employment salary.
Professionals employed by a company often enjoy the security of having a set salary every month. Jobs with an established company often offer more employment stability too, as the company is likely to continue developing and growing. Additionally, if you work for a particular employer for many years, you can receive a redundancy package if they end your contract. However, when you're self-employed, you may not be able to depend on your job security or a regular income.
When you work for an employer, that employer must have insurance to help you in case you become ill or injured because of your job. Many companies also offer their employees life insurance that pays a set amount to your family if you pass away. If you're self-employed, you're responsible for purchasing your own insurance policies, such as personal accident or income protection insurance.
Pros of being self-employed
Many professionals who are self-employed enjoy many benefits, such as:
Fewer distractions: Some offices may have many distractions, such as workplace conversations or frequent meetings. Some people who work from home or only periodically visit their clients may increase their focus and productivity.
Flexible schedules: Professionals who are self-employed can create their own schedules and even vary their schedule on a daily or weekly basis. Additionally, if you're self-employed, you don't have to worry about using sick days or paid time off allotted by your company.
Reduced commute time and spending: Many self-employed individuals enjoy minimising their commute time. Self-employment may also reduce expenses related to commuting, such as gas, parking, coffee or lunches from a restaurant or cafe.
Creative strategies: When you're an employee, supervisors may assign you specific tasks and methods for completing them. If you're self-employed, you might be able to think more creatively and explore various ways of accomplishing tasks or projects.
Be your own supervisor: Professionals who are self-employed get to be their own manager. They do not have to update a supervisor on their progress or receive assignments from others in their company.
Related: 14 Self-Employed Jobs in the UK
Pros of being employed
Here are the benefits of being employed by another company:
Dependable income: Perhaps the biggest advantage to employment is the dependable salary. Employees can rely on receiving paychecks for the same amount on a regular schedule.
Designated workplace: Many professionals employed by a company go to an office or other work site to accomplish their job duties. Some employees appreciate the benefits of a designated workplace, such as the work-life balance and the socialisation with their coworkers.
Predictable schedules: When you work for another company, you typically have a set schedule. Knowing your work schedule ahead of time can make it easier for you to make plans outside of work and minimise how often you work overtime.
Bonuses and benefits: Some businesses entice their employees to remain at their companies by offering salary bonuses, such as commissions. Many businesses also provide benefits to their employees, such as private health care or child support.
Job stability: If you work for another company, you may enjoy greater job security than you would as a self-employed professional.
Tips to help when working from home
Whether you're self-employed vs. employed, working for another company, many professionals increasingly work from home either part- or full-time. Here is some advice for productively working while you're at home:
Dress for your job. If you're still dressed for bedtime, focusing purely on your work can be challenging. Get up, brush your teeth and change into an outfit that makes you feel professional. Dressing for work can make you feel more motivated, even if it's only on a subconscious level.
Set your schedule
Keep your working day separate from your normal routines. If you get the most daunting work tasks out of the way first, the rest of the day may progress more smoothly. Ensure you have regular breaks, especially if your job involves staring at a computer screen. Aim to take a lunch break away from your screen and try taking a brisk walk before your afternoon tasks.
Create a workspace
Create a dedicated workspace away from the areas you associate with relaxation and sleep. This can help you mentally separate your job from the other aspects of your life. Make the workspace as organised and comfortable as you would your desk in an office, perhaps with a plant or a family picture.
Ensure that your family and friends know your working hours and that you‘re not disturbed unless it is urgent. Additionally, set your personal phone to silent. You can check messages and notifications during your lunch break.
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