In the modern economy there are numerous reasons that people start to work for themselves. They may have special skills that have been outsourced by a larger company, or they may want to make the most of the financial gains that their skills can bring, rather than simply earning a fixed salary. Whatever the reasons, many people each year choose to take the path towards freelancing.
What is a ‘freelancer’?
A freelancer is essentially a self-employed individual who can work on a per-job basis for whichever company or organisation needs their services at any given time. Although travel from job to job is possible, this style of work is often done from home, by entrepreneurs with a particular service to offer or a specific business idea that they would like to pursue on their own. Freelancers work for themselves, so they have no managers above them, but they are responsible for all their own business management, including finances, taxation, and any other relevant administrative or legal demands, according to their field of work.
What are the financial advantages of being a freelancer?
Many people like to point out the difficulties involved in being an entrepreneur. However, freelancers also enjoy a number of tangible advantages, including financial ones. A number of these advantages are given here, but this list is far from exhaustive.
- Short-term work and one-off jobs frequently pay more per hour than a full-time job. This means that a freelancer’s earning potential is greater.
- Every hour of freelance work can be charged for and subsequently compensated at a rate equivalent to the difficulty of the task involved. This means that demanding work can command higher rates of pay. Permanent employees are frequently paid the same regardless of how difficult an individual task is.
- There are frequently tax benefits for a freelancer that can increase the amount of net income in his or her pocket.
- The freedom to choose when and where to work means that significant costs, such as travel during peak hours, can be reduced or even cut completely.
- If demand for certain skills increases, it is easier for a freelancer than for an employee to negotiate a raise in the rate of pay for a job.
- A freelancer with effective time management skills can work on different jobs for different clients within the same time frame. This increases the amount that can be earned within that time period.
What does an umbrella company do for freelance workers?
Many freelance entrepreneurs decide to go it on their own, and while some make good, others can also fail. Often, this is to do with not having sufficient business contacts or knowledge of business administration. To help bridge this gap, some freelancers make use of what is known as an umbrella company. In this scenario, an umbrella company can liaise with a freelancer or contractor to manage certain aspects of taxation legislation, such as that in place for IR35. The umbrella company can then act on behalf of the freelance contractor in setting up contracts with different clients. In this way, the management of aspects such as expenses and taxation can prove more beneficial to the entrepreneur.