Are You Ready to Be a Part of the Freelance Economy?
One side effect of the sluggish job market has been a rise in the number of people who are deciding to strike out on their own as freelancers and independent contractors. This has led to the creation of what some are calling the “freelance economy.”
Self-employed Ranks Are Growing
According to the Bureau of Labor Statistics, about 15.5 million people in the U.S. are currently self-employed. This number has risen by about one million over the past year. Meanwhile, a study conducted by Intuit predicts that 60 million people, or more than 40 percent of the entire workforce, will be contingent and independent workers by 2020. These will include independent contractors, freelancers, temps and others who receive a 1099 form instead of a W-2.
“Many people are discovering that they can make more money and have more freedom and flexibility as self-employed freelancers than they did as employees,” says Spencer Wilson, EA. “Some of these new freelancers have been laid off from jobs while others have simply decided to take the freelance plunge on their own.”
A number of different factors have led to the emergence of the freelance economy. These include the sluggish job market, corporate downsizings, technological advances making it easier to work remotely, the availability of more co-working space, and growing dissatisfaction among many employees with life in the corporate world.
Pros and Cons of Self-Employment
Bret Willoughby, CPA says there are pros and cons to self-employed freelancing as compared to working a full-time job. “The biggest benefit of self-employment for many people is flexibility in their work schedule, which enables them to maintain a better work-life balance. It's much easier for most freelancers to attend their kids' school and sporting events or deal with pesky home repairs during the normal workday than it is for full-time employees to do these things.”
Another big benefit is freedom: from the 9-to-5 (or maybe much longer) grind, cubicle farms, overbearing and demanding supervisors, office politics, annoying coworkers — all the things about the corporate world that many employees dislike. And don't forget about the lack of a commute for freelancers who work from home. “This can potentially add hours of time every day back to their schedule,” says New York based Mark Glazewski, EA.
These sound like great perks, but there are some serious trade-offs — starting with the lack of a steady salary and benefits. “Freelancers ‘eat what they kill,'” is how Mark Glazewski, EA puts it. “There's no direct deposit hitting their bank account every other week. If they're not landing new clients, producing billable work and collecting accounts receivable, they're not generating income.”
That's why self-employment isn't for everyone. It takes an entrepreneurial mindset, some business acumen and salesmanship, good organizational and time management skills, a sense of independence, and strong discipline to be successful as a full-time freelancer. “A lot of people find out the hard way that while they may be good at doing their jobs, this doesn't necessarily translate into success in self-employment,” says Rhinelander, WI, tax professional Marge Cook.
Retirement saving and taxes are other factors to consider. There's no employer 401(k) match or profit-sharing plan for freelancers, who are responsible for setting up and funding their own retirement savings accounts. Freelancers also have to handle their business taxes themselves, although many choose to hire an accountant or CPA to handle this aspect of their freelance business.
Are You Ready?
If the projections hold true, nearly half of Americans could be full-time freelancers within the next half-decade. This will represent a seismic shift in the U.S. workforce — but are we ready for such a drastic change?
Only time will tell. In the meantime, it might be a good idea to give some thought to whether or not you have the skills, attitude and discipline required to make a go of it on your own in the freelance economy.