Self-Employment: What You Need to Know to Be Your Own Boss

You're setting your own hours. Being your own boss. Calling the shots in the workplace you’ve created. Sound appealing? These are some of the perks of being self-employed. According to the Bureau of Labor Statistics, over 16 million Americans are currently self-employed.

However, self-employment isn’t without its challenges. While being able to call your own shots sounds glamorous, being your own boss takes hard work, dedication, and incredible focus — with no guarantee of pay, benefits, or success in your field.

If you’re considering self-employment, continue reading to learn everything you need to know to be your own boss. And if you're short on time, jump to the information you need:

• Self-Employment Definition
• Self Employment Advantages
• Self Employment Disadvantages
• Types of Self-Employment
  • Business Owner
  • Freelancer
  • Contractor
• How to Become Self-Employed

First, let’s define what it means to be self-employed.

Self-Employment

Self-employment is the practice of earning income directly through one's own business or trade, rather than working as an employee for an employer. In self-employment, an individual is responsible for managing and financing their own business, including all aspects of marketing, sales, and financial management.

Growth opportunities for self-employed individuals vary greatly depending on the field of work and fluctuate according to how the economy is doing. For example, amidst Covid-19, self-employment was less susceptible to initial employment declines than other forms of employment and recovered more quickly to pre-pandemic levels than other forms of work.

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In particular industries like real estate and transportation industries have become more common sectors for the self-employed to work in, with the growth of transportation potentially being related to the growth in gig economy apps like Uber.

Is being self-employed for you?

Self-employment has advantages and disadvantages that should be heavily considered before starting this career.

Self-Employment Advantages

1. Independence

For most people who pursue self-employment as a career, the sense of independence and autonomy over how and when they work are among the greatest benefits. Depending on the nature of their work, self-employed individuals can often control their hours, where they work, and how to complete their work best.

2. Engagement

If you’re self-employed, you also probably wear many hats. You’re in charge of the products and services you’re selling and managing administrative tasks, marketing, and operational duties. In other words, you’ll rarely be bored if you're self-employed.

3. Earning Potential

Additionally, because they are not working for wages determined by a company and are only eligible to receive annual pay increases, self-employed workers don’t have a specific limit to how much money they can make. Between setting their own rate, and taking on as few or as many clients as they desire, self-employed workers typically have greater earning potential than hourly or salaried employees who have less control over how much money they bring home.

Self-Employment Disadvantages

1. Inconsistent Income

As we mentioned earlier, with great power comes great responsibility. Self-employment can be challenging, with a lack of consistent income being a common concern. For those whose income depends on their ability to sign clients or sell products that don’t yet have a strong customer base, earnings can fluctuate greatly during a slow month or off-season.

2. Self-Managed Benefits

Additionally, self-employed workers are often responsible for securing and managing their benefits like healthcare, retirement savings, and paid time off. This can become incredibly complicated for business owners responsible for managing these benefits for their employees.

3. Overwhelm

Along with inconsistent income and the lack of guaranteed benefits, the demands of managing various business areas (outside of simply completing tasks related to a particular skill or trade) can feel overwhelming for self-employed individuals.

Self-employment can look like many different roles, so let's discuss the big three.

Types of Self-Employment

1. Business Owner
2. Freelancer
3. Contractor

Business Owner

Many self-employed individuals choose the entrepreneurship path, opting to operate their own business. Instead of focusing on a set of tasks or statements of work like an employee, business owners often create businesses to solve some sort of problem.

Self-Employed Business Owner Example: Billie

Georgina Gooley founded Billie when she realized prices for women’s shave products were significantly marked up due to pink tax.

As a business owner, you're your own boss and are responsible for operating a company. Here are two essential things you will need to do to establish and begin operating your business:

A business plan is a guiding document that outlines all of the major details of your business. A thorough business plan will explain your business model, address how your company will make money, document your company's structure, and include detailed financial and marketing plans. For help writing your business plan, download this template.

Next, you’ll need to legally establish your business. How you do this can vary depending on your state (for those in the U.S.). For small business owners, these are the most common business structures:

• Sole proprietorship — This is usually the preferred business filing for individual contributors and solopreneurs. Under a sole proprietorship, an individual owns the business, and legally there is no separation between the business and the person who owns it. A sole proprietorship can be a good option for the entrepreneur who does not plan to take on partners or employees and works in a field where they offer a specific range of services (i.e. graphic design or consulting).
• Limited liability company (LLC) — In an LLC, business owners have limited liability, and are not personally responsible for the company’s debts. This can be a good option for small businesses that are more complex or offer a wider range of goods and services than a sole proprietorship. In many states, individuals can own a "single member" LLC, so solo business owners can consider filing as an LLC depending on where they live.
• Partnership — In a partnership, two or more owners manage and share responsibility for a business. With this type of business structure, profits, and losses are shared and paid among partners. This type of structure is popular among businesses such as law firms, real estate groups, and medical offices, where multiple practices can run from one establishment.

Freelancer

A career in freelancing can be a positive self-employment option for those who highly value flexibility and have a specific skill they specialize in. As a freelancer, you provide contract services to as many companies and clients as you would like to take on.

Freelance roles are popular in fields including writing, photography, consulting, graphic design, and administrative assistance. It’s important to note that working freelance, your potential earning has no maximum, however, work (and thus pay) can be inconsistent.

Here is a recommended course of action if you want to pursue freelance work.

As you work to book clients, you want to make sure you can provide examples of your work. Unlike a traditional job where you apply with a resumé, potential clients want to see your prior projects that showcase your skills and testimonials from previous clients. The most straightforward way to do this is to have a portfolio to showcase your best work.

You can create a portfolio by linking to your previous bodies of work on your website or using an online portfolio tool. Popular online portfolio sites include:

• Behance — This website has a portfolio creation tool for freelancers in the creative fields including graphic and UX/UI designers, illustrators, and video editors. Behance can be licensed through an Adobe Creative Cloud membership.
• Clippings.me — Designed for writers and journalists looking to create an online portfolio, Clippings.me offers a free tier perfect for displaying small clips. Paid plans start at $9.99 per month and for robust online portfolio hosting.
• Carbon Made — For visual artists, Carbon Made offers a beautiful interface to host online portfolios. Plans start at $8 per month and offer unlimited video and image hosting.

The beauty of freelance work is determining how much you charge for your work. However, deciding how much to charge can be challenging. When choosing your rates as a freelancer, factor in the following considerations:

• Your overall income goals — How much money will you earn this year? How many projects can you reasonably complete? Divide the total amount of money you would like to earn by the number of projects you can reasonably complete to give you a ballpark range for how much you should be bringing in for each project.
• Business expenses — How much will it cost you to complete the work? Do you have to purchase any equipment (i.e., a new computer or new software) to complete your jobs? If so, factor in how much it may cost you to complete the work and build this into your rates. For example, if you spend roughly 10% of your income on expenses related to completing your work, you may want to add an additional 10% to your rates to offset this value.
• Market rate — It may help to look at how much others are charging for similar work. Compare rates with those of similar experience levels to get a feel for how much you could be charging. The following websites can be helpful for finding market rates.
  • Average rates for writers and editors
  • Average rates for digital designers and developers

• Hourly vs. project — How you charge clients (i.e., work by the hour, or a lump sum for the project) will depend on your preferences and the nature of work. Being paid by the hour for freelance work emphasizes the time it takes to complete a project. Receiving a lump-sum payment for completion of a project emphasizes the end result.

Once you determine what work you want to provide and how much you want to charge, it is time to start booking clients. For most freelancers, this includes applying for open job listings and pitching work to potential clients. Popular websites for freelance job listings include:

• Fiverr — Website for quick-turn creative projects including logo design, and audio/visual editing jobs.Creating a profile and listing services is free, and you walk away with 80% of earnings from each transaction.
• UpWork — Currently the internet’s largest freelance job posting site. Upwork offers listings for most major freelance niches, and is a good place to get started for beginner freelancers. For freelancers, service fees range between 5-20% of earnings.
• CloudPeeps — This website is geared towards more experienced freelancers, with opportunities primarily in the fields of social media, content creation, and marketing. You can create a free account to be listed in their online directory, with paid plans starting at $9 per month for additional features.
• Guru — On Guru, you can create a profile to showcase your work and connect with potential clients. Creating an account as a freelancer is free, and you pay a 2.5% transaction fee for each paid invoice.
• 99Designs — Designed to be a platform for visual creatives to find work, 99Designs has opportunities for designers to create logos, websites, and visual identities for growing brands. Freelancers can create a profile for free to bid for design jobs through their site.

Contractor

Contract work can be a good middle-ground for those seeking more consistent work but not wanting to be tied to a single company long-term. Contractors are hired to complete a statement of work for a specific time. In these roles, workers are often paid hourly from the companies they are contracted to work for and do not receive benefits.

Employment contracts can range in length from a few days to multiple years, depending on the nature of work. Typical contract roles are project-based (for example, a company may hire a contract project manager to implement a new process) or are a temporary backfill for full-time employees who will eventually return to work (for example, many contractors provide support while employees are on parental leave).

Self-Employed Contractor Example: Gig worker

In recent years, we have seen a rise in the "gig economy" with the creation of independent jobs from modern services. These types of jobs include driving for ridesharing services such as Uber or Lyft. Many people take on these roles to supplement other sources of income, the creation of more ways of doing work has the potential to reshape the future job market.

Now, let's discuss how to successfully navigate the world of self-employment.

How to Become Self-Employed

1. Determine the type of self-employment you want to pursue.
2. Create a schedule.
3. Develop processes.
4. Establish boundaries.
5. Delegate tasks where you can.
6. Seek out mentorship or coaching.
7. Prioritize self-care.

1. Determine the type of self-employment you want to pursue.

The path to self-employment is not one size fits all. And as we previously discussed, various options are available for creating self-governed work.

• Business Owner
• Freelancer
• Contractor

Once you've chosen the right path for you, and done the preliminary steps for it, you can move on to more hands-on work.

2. Create a schedule.

For many, the biggest appeal of self-employment is flexibility. While it can be tempting to work anywhere, anytime, creating a consistent schedule can be helpful for many self-employed workers. Creating a schedule helps you maintain a better work-life balance so you aren’t always "on." It also improves your communication with potential clients and customers, because they must set hours for getting a hold of you, creating a sense of routine and professionalism.

3. Develop processes.

As you settle into the groove of self-employment, developing standard processes can help you work smarter, better, and faster. Look at your statement of work to identify tasks that can be automated or simplified. Often, the best place to start is with tasks that are done repeatedly, such as administrative tasks that can be automated. Here are suggestions to help you scale and automate your work.

• Implement a CRM — A customer relationship management platform (CRM) can be a valuable tool for keeping track of client information. You can use a CRM to manage all client communication without manually tracking correspondence from a spreadsheet or your inbox.
• Inquiries process — If a potential client sees your work and wants to hire you, do you have a process to support inquiries? A simple process could be having a specific email inbox project inquiries go to so they don’t get lost in your inbox, allowing you to batch responses easier. Or it could be setting up a "work with me" page on your website, having a web form specifically for project inquiries so people can contact you directly for work. Ideally, you will have this process in place before you truly need it to prepare you for success.
• Project management — How are you currently tracking how client or customer work is managed? With a project management system in place, your job as a self-employed worker will be easier, and your clients and customers will likely receive the same positive experience. You can use a tool such as Asana to help you manage your client projects and integrate them with your CRM.
• Budgeting — When you’re self-employed, you need a solid plan to help you manage your business finances. When managing your own pay (and the pay of your employees) you have to understand where your money is coming from. Using a system like QuickBooks Self-Employed is a good way to automate your finances so you don’t have to track everything manually.

4. Establish boundaries.

When you are your own boss, it can be tempting to feel like you need to work all of the time. In a traditional job, there are often set working hours or physical space you go to and leave from each day to establish boundaries. When you work for yourself, you must create those boundaries. Helpful boundaries for the self-employed can include:

• Creating a designated workspace for yourself that is for work only — This establishes a boundary between recreational and professional space. When you are in your workspace, that is a time for work and focus.
• Communication expectations with clients — Create norms around client communication. Determine what communication channels you prefer to use with clients (such as Slack, or a designated email address instead of your personal email address or phone number) so clients know when and how to get a hold of you. Additionally, you may want to consider communicating to clients what a normal response time is (for example, making it clear that you respond to emails within 24 hours).
• Out-of-office procedure — When you work for yourself, you won’t have a structured PTO plan or designated backup to handle inquiries if you are out of the office. To protect your time away from work, communicate to clients and stakeholders when you’ll be away and for how long, and set up autoresponders so inquiring clients know when you’ll return and when they can expect to hear from you.

5. Delegate tasks where you can.

Even if you are a solopreneur who does not have employees, you can still delegate business tasks. Stay in your zone of genius and focus on the work you truly love to do, whether it's writing, designing, or consulting by outsourcing tasks that are not your strong suit. Here are a few business tasks you may want to consider outsourcing if you’re self-employed:

• Bookkeeping — As a self-employed person, you want to ensure your finances are handled correctly. Hiring professionals to handle your financial tasks including invoicing, tracking profit and expenses, and helping prepare your taxes helps free up your time to focus on work and ensures these tasks are done correctly.
• Social media posting — If social media marketing is on your task list, you need a strategy to streamline your posts. This could be as simple as creating a social media schedule and pre-planning content so you’re not stuck wondering what to post next, or you can use an automated tool to publish content for you.
• Administrative tasks — Are you pinned down by repetitive administrative tasks such as inbox management or reporting? There are several options available to help you delegate these tasks. If you aren’t ready to make your first hire, use the Personal Assistant listings on Task Rabbit to bring in hourly support when you truly need it. If you’re looking for a more long-term solution or support for a specific project, bringing on a contracted virtual assistant can be an affordable way to delegate administrative tasks.
• Time tracking — If you track your billable hours manually, it's time to automate. Numerous time-tracking apps available can integrate directly with your favorite tools including Gmail, Google Calendar, and QuickBooks for invoicing at the click of a button. Check out some of our favorite time-tracking apps here.

6. Seek out mentorship or coaching.

In a traditional work environment, you usually have a manager you report directly to who can provide guidance, mentorship, and coaching. When you are your own boss, you have to seek out this type of support by yourself. Even when working for yourself, developing your skills should be a top priority to help you grow and evolve in your career, and having a trusted mentor or career coach is a great way to get this type of support.

Find a mentor by networking with people who have the experience you want to learn from (and who you may be able to offer valuable insight from as well). Before approaching a potential mentor for advice, clarify your goals and what you hope to gain from mentorship. You may also find that having a business or career coach to keep you accountable is a helpful option.

7. Prioritize self-care.

Last but certainly not least, make self-care a top priority. When you are your own boss and your livelihood depends on your ability to produce, you have to take care of yourself so you can continue to feel your best. Self-employment takes stamina, and self-care can help you keep up. Here are some ways to incorporate self-care in your routine:

• Stay on top of your health — A balanced diet, coupled with regular exercise, is one of the best things you can do to improve focus, boost creativity, and improve overall health. Aim for 30 minutes of movement each day. Even a lunch break walk to get away from your desk can work wonders.
• Build quiet time into your schedule — Having quiet time to reflect is essential for everyone, especially the self-employed. Build time into your schedule each day to meditate, journal, or just sit and be present with yourself.
• Make time for hobbies and recreation — Everyone should have activities they do purely for enjoyment that don’t involve work. Taking intentional, recreational breaks from work can help you feel refreshed and inspired when you do work. Whether you have a creative hobby, like to explore the outdoors, or enjoy reading fiction, keep activities in your schedule that are purely for enjoyment.
• Get enough rest — Sleep is essential for high-performers. When you are well-rested you can think critically, make better decisions, and you are less likely to make time-consuming mistakes in your work.

Understanding Self-Employment

Embarking on a self-employed career can be incredibly rewarding. A self-led career can offer you flexibility and opportunities beyond more traditional jobs, but it isn't without risks. We hope you found this post useful as you prepare to pursue a career of your own.

Editor's note: This article was originally published in October 2019 and has been updated for comprehensiveness.