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What Is the Difference Between Being Employed and Self-Employed?

When employed, taxes and other fees are taken out of the paycheck before it is given to the employee.
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  • Written By: April S. Kenyon
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 10 December 2014
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There are many differences between being employed and self-employed. For many people, this includes taxation laws, the advantages and disadvantages of sole proprietorship, and the needed level of self-motivation. Understanding these differences is important for anyone looking to make a switch between being employed by a company or undertaking self-employment.

One of the main differences between being employed and self-employed is the fact that there are completely different sets of tax laws in most countries. Individuals who are employed by a business or company automatically have these taxes taken out of their paychecks, and the employers pay a portion of the taxes due. Those who are self-employed are required to pay out and keep track of the amount of taxes owed to the government, and are responsible for the entire amount.

Self-employed individuals have what is known as sole-proprietorship. Many people enjoy the independence obtained through self-employment. The trade-off is that self-employed individuals do not receive paid sick leave or retirement funds from an employer, and in many countries are responsible for their own health insurance. Another difference between being employed and self-employed is that if there is no work for a self-employed person, there is no pay. There is also no avenue under sole-proprietorship for workers' compensation if an injury occurs.

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Being self-employed also has a number of advantages over being employed by a company or business. A self-employed individual is in charge of the business. Responsibility for themselves and others in the workplace is a key factor. The individual has the freedom to do things as he or she sees necessary instead of answering to a boss or supervisor.

Perhaps the biggest advantage to self-employment is the financial aspect. It is quite possible that the self-employed person can make more money than the employed individual for the same amount of work. A sole proprietor basically gets to decide the amount that is made each week. He or she can work as little or as much as is deemed necessary.

One of the biggest differences between being employed and self-employed is the fact that a self-employed person doesn’t have a boss or supervisor to report to and depend on. Self-employed individuals are essentially on their own. Even though self-employed people have more freedom in making decisions and flexibility in putting together their own schedules, they also have many more responsibilities.

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Logicfest
Post 2

@Soulfox -- Because a lot of time a person might be brilliant at coming up with a profitable idea but is horrible at running a business. The "business side" of things can get very complicated in a hurry.

Let's talk about the lawyer you mentioned, for example. She may be a brilliant lawyer, but you don't really learn how to run a law practice well in law school. That is a skill learned by people who earn degrees in business administration or not. Lawyers learn how to sue people. That lawyer might be smart when it comes to her profession, but dumb when it comes to building a business and making it work.

Soulfox
Post 1

A self-employed person can make more than an employed person if they keep their overhead low. Let's say you have an attorney who is self employed. She starts getting more cases and then decides she needs to hire a secretary. The overhead goes up at that point. She decides to go into bankruptcy law and purchases a software package geared toward lawyers wanting to generate bankruptcy petitions. Boom. Overhead goes up again.

Overhead increases more as she adds or expands on her legal library, pays for advertising and marketing, pays for an Internet site, etc.

I have seen a lot of self-employed people start out well and then simply drown in overhead. I'm not sure why that is. You'd think someone who is sharp enough to be an attorney (or build a successful business) could figure out how to cut costs and be efficient withe money. I wonder why that is so often not the case.

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