October 7, 2020

The honest risks of self-employment (and why it’s worth it anyway)

Written by Martin Baxter

Being your own boss is a dream for many. No more being micromanaged, no more office politics, no more clocking in on someone else’s schedule. You have the freedom to pick your own hours, your own projects and your own clients, and all your hard work lines your own pockets – not someone else’s. 

But there’s no denying that self-employment comes with a degree of risk. It simply doesn’t have the same safety and security of a “normal” job. So before you take the leap into unknown territory, here are our top things to consider: 

No safety net 

Employment in the UK currently comes with a set of statutory protections and entitlements. All workers are entitled to a minimum of 5.6 weeks of paid holiday per year (28 days if you work full time), and some employers offer even more as an incentive. With self-employment, if you don’t work, you don’t get paid, meaning that you will need to save to cover any periods that you want to take as holiday (and we do recommend taking holidays, because self-employed life is hard work)! 

Similarly, if you get sick, all employees are entitled to a minimum of £95.85 statutory sick pay per week for up to 28 weeks. However, there’s no sick leave scheme for the self-employed. If you have to take time off work, you’ll have no income, and that can be a scary prospect for many. It’s a good idea to make sure you are saving some money each month to cover periods of absence or leave. 

Taxing taxes 

When you work for someone else, it can be annoying to get your payslip and see that your tax and national insurance has been whisked away from you before you even got close to it. However, once you’re self-employed you’ll be longing for those days! Your employer pays your tax and national insurance on your behalf via a system known as ‘Pay As You Earn’ (PAYE). But self-employed people have to calculate and pay their own tax through an annual system called Self-Assessment. It involves filling in an online form, and means you have to keep a strict track of all your incomings and expenditure. It also means you have to be careful to put aside some money to cover your taxes so you’re not left with a huge bill that you can’t afford to pay. This new responsibility is not much fun, but it’s all a part of freelancer life, and you soon get used to hanging onto those receipts! 

It’s all on you 

A traditional job means a guaranteed wage and income; you know more or less how much you can expect to have coming in every month. Even if a company’s profits fluctuate, you are still entitled to your contractual wage. But when you’re self-employed, you’re responsible for generating all of your own income. The amount of work you are able to secure can fluctuate from month to month, which affects your pay. This can be especially difficult to weather if you work in a seasonal industry, like tourism or weddings. Unpredictable events can mean your profits take a hit. This is one of the aspects of self-employment that can be most daunting to a first-time freelancer. Make it easier on yourself by having a strong business plan where you’ve worked through how to keep money coming in when times get tough, and make sure you are pricing your services at a level to cover your time, costs and those hidden extras like sick leave, holiday pay and a pension. 

Long hours 

Most jobs come with a set expectation of working hours, whether that’s shifts or the standard 9-5 office day. But when you’re self-employed, there’s no one watching you clock on and off. This may sound brilliant, but it can also be a kicker. In busy periods or in the early days while you’re trying to get your business off the ground you may find you have to put in long hours, working extra evenings and weekends to drum up business, meet project deadlines and get your business infrastructure in place. 

Liability is yours 

If an employee makes a mistake in the course of their job, the company that they work for assumes liability. They will usually have comprehensive business insurance and corporate lawyers to protect themselves. When you’re self-employed, you are personally liable for any mistakes that are made in the course of your work. This could be things such as accidentally infringing copyright by using an image that you don’t have permission for, an article that you wrote is accused of being defamatory, or a client discovers a security flaw in a website you’ve built for them. Or it could be unforeseen accidents such as someone tripping over your laptop cable as you work in a busy cafe or you spill your drink over a colleague’s MacBook in a coworking space. Either way, the legal bills and compensation can run into hundreds of thousands of pounds – unlikely to be the type of money that a small, start-up self-employed person has knocking around. This is why our first recommendation to anyone thinking of setting up as self-employed is to get business insurance. If you are working as a freelancer you may not even really think of yourself as a “business”, but it’s important that you recognise the risks and put in place some protection for yourself. Dinghy insurance is specifically matched to the needs of freelancers like you and our package offers professional indemnity insurance and public liability insurance to cover both of the types of eventuality above. 

We’ve tried to be really honest with you about the risks – self-employment is not without its occupational hazards. That said, we’re firm believers that it’s all worth it for the freedom and control that it gives you over your time and work. You can focus on areas of work that you enjoy, have a say in who you work for, where you work and when you work. Very few employed jobs offer the degree of flexibility and autonomy that comes with working for yourself. Plus, with freelancer insurance from Dinghy offering not just protection from liability claims but also cover for equipment and a helpful Freelancer Assist service that chases invoices and aids in other legal or client disputes along the way you can focus on the important things, like doing what you love for a living 

About Martin Baxter

Read more blog posts by Martin Baxter


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