Trading Places: Are You Ready for Self-Employment?

Think about it. You land a job with any established company and there's a decent chance you can keep it as long as you want to. (Even in the worst of times, layoffs affect only a tiny minority of the workforce.) You get paid every couple of weeks, regardless of business conditions, plus you face the prospect of a raise, and maybe a bonus, after a year or so. Along with your salary come paid vacations, holidays, health and disability coverage, maybe life insurance, probably a 401(k), and often a host of other perks ranging from club memberships to concierge services.

But it isn't just the compensation; it's also the fact that your company provides you with everything you need to do your work effectively. Tools and equipment -- far better than most people could afford on their own -- plus all the supplies you could use, free of charge. Support staff and technical personnel of all sorts -- a travel department, people to deal with the telephone company and sort the mail and collect the bills, specialists to fix your computer, even an executive assistant if you rank high enough. Many companies have a cafeteria of some sort, often with subsidized meals; a few provide on-site day care or set up plans that allow for payment of dependent-care expenses with pretax dollars. None of this is charity. Businesses want to attract and keep good employees, and above all make it possible for them to focus on their jobs to the exclusion of everything else. The companies that make Fortune's annual "100 Best Companies to Work For" list aren't great places to hang out -- they're great places to work.

"The more we do for employees, the better work they can do."

And it isn't just the workplace; it's the society, which is built around organizations in as many ways as you count. Among them:

Governments have a dozen ways of collecting taxes, from simply sending out bills (the way communities do for property taxes) to taxing business transactions (a sales or value-added tax). In our society the biggest taxes are Social Security and the personal income tax; most people pay both of them through the W-2 payroll deduction. You never see the money going out, and you often see a little bit coming back, in the form of a refund. It's about the least visible and least painful way of paying a tax, and it depends on organizations.

In a similar vein, private businesses have a dozen ways of sizing up potential customers for reliability. In the old days the local banker might know you personally and judge you by your character. A prospective landlord might judge you by your appearance or family size. But in our society banks, auto dealers, credit-card issuers, and other lenders -- not to mention landlords -- typically care a lot about one thing: your pay stub. If you have a job, you're probably OK.

Most developed countries provide health care through some kind of government system. And plenty of other systems are imaginable -- regional or insurance co-ops (as in the Clintons' ill-fated plan), hospital-based coverage, individual policies, whatever. But nearly all Americans under the age of 65 who have health coverage get it from one source: their employers. (The system dates from World War II, when large manufacturers and unions agreed that the companies would pay for health insurance instead of granting an hourly pay increase, which would have run afoul of wartime wage controls.) Get a job with a company that offers health benefits and you automatically qualify.

Now contrast that happy situation with citizenship in Free Agent Nation, which compared with Employee Nation is like an underdeveloped country. In Free Agent Nation, you're on your own, and you have to line up new work while you're trying to finish the current project. In Free Agent Nation, nobody does anything for you unless you pay for it. You send Social Security and income-tax payments to the government yourself, writing those big, painful checks four times a year. You buy your own office furniture, telephone equipment, fax machine, pens, and stamps. You fix your own computer and make your own travel reservations, collect your own receivables and type your own correspondence, and pay for your own vacation time and holidays. Want a loan? Be prepared to show a few years' worth of tax returns and put up more collateral than you would have to if you could produce a pay stub. "Banks don't like to lend to self-employed people," acknowledges Jay Burchfield, chairman of Trust Company of the Ozarks, in Springfield, Mo. "It isn't that they don't want to provide the service; it's just that the failure rate is that much higher. That's why they have those requirements."

And health insurance! If you have a preexisting condition, forget about it. When Congress passed the Health Insurance Portability and Accountability Act (HIPAA), in 1996, it became easier for most employees to "carry" their insurance coverage from one employer to another, regardless of preexisting conditions. But what if you're going out on your own, entering what is known as the nongroup market? HIPAA "pretty much didn't change anything," says Judith Feder, a health-care specialist who is dean of public policy at Georgetown University. In many states if you do qualify, you'll probably pay the highest rate around (or else settle for limited coverage) -- and, of course, you'll pay it all yourself.

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