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Trading Places: Are You Ready for Self-Employment?

 

Are such outfits -- few and far between today -- likely to expand and proliferate? Maybe, but there's a chicken-or-egg problem: they need enough solo entrepreneurs in any given area or profession to make the enterprise viable, but they may not get enough as long as all the barriers are in place. One way around that problem may be legislation analogous to the safety-net legislation that helped stabilize Employee Nation several decades ago. Right now, for instance, national associations can't offer health insurance because they can't handle the widely disparate state regulations that govern the field. Congress could eliminate that problem with a stroke of the pen. A national health-insurance system that guaranteed coverage for all, regardless of where (or whether) people worked, would do still more.

Granted, all this is no more than suggestive. And one thing it suggests is that we're talking decades, not years. But that's exactly the conclusion you have to draw about Free Agent Nation: not that it can't happen someday, or that it won't, only that it hasn't happened yet. How people work is a social construct, the result of a hundred different laws, policies, customs, incentives, and practices. Here in America, things have been organized for decades to give people a big incentive to work for companies. But if we created a new set of institutions designed for free agents, the last barriers to entry might begin to crumble -- and that stubborn self-employment rate might begin to creep upward.

As for the pace of change, well, as Aquent CEO John Chuang puts it, "it's more the tortoise than the hare." We know it was the tortoise who won the race. We just don't know how long the whole thing took.


John Case is a contributor to Inc.

A Tale of Two Designers

Take two Web designers earning $90,000 a year. Harry, who works for a company, gets his pay every two weeks, minus 7.65% payroll tax, income-tax withholding, and his share of health insurance. But look at what else he might get and (roughly) how much it would be worth annually:
Annual salary $90,000
25 paid days off -- three weeks' vacation plus holidays $9,000
The employer's share of health insurance, plus dental, disability, workers' compensation, and unemployment coverage, all of it tax free $6,000
Office space and furniture, a high-powered computer, a phone, and a high-speed Internet connection $5,000
Supplies $1,000
A 50% match on 401(k) salary deferrals $3,000
Other assorted perks and benefits $2,000
Total compensation, in cash and benefits $116,000
 
And then there's self-employed Larry, equally talented and hardworking, recipient of the same gross income (if he can collect it) of $90,000. Here's what he has to pay that Harry doesn't:
Annual salary $90,000
Employer's share of self-employment tax (at current caps) ($6,000)
Health insurance (if he has a family or lives in a high-cost area like New York City, it'll be much more; and he probably won't be able to buy any other coverage, such as disability, at all) ($4,000)
A desk, a computer, and phone and Internet service (minimum -- and that's if he works from a home office) ($3,000)
Supplies ($1,000)
Gross income less self-employment expenses listed above $76,000
 
Compensation difference between Harry and Larry $40,000
 
 
Larry will do a little better on his income tax than Harry, because some of his expenses are tax deductible, but it won't be enough to make up the $40,000 difference.  

Please E-mail your comments to editors@inc.com.

For more self-employed resources, see Inc.com's Striking Out on Your Own and the Running a One-Person Business channel.

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