Employed versus self-employed

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Employed versus self-employed

Post by miriam » Mon Jun 18, 2012 9:50 pm

Some people see the higher hourly rates and think that agency work, or self-employed contracting might be an attractive option. However, beware that hourly rates can be deceiving. You need to earn a lot more per hour as a self-employed person to take home the same money as a salary. And if you work for an agency they will also take their own cut.

Firstly salaries cover annual leave, sickness, bank holidays and CPD time. So, for a freelance worker the hourly rate needs to reflect the fact they will have to self fund these things. I tend to divide the annual salary by 215 working days (which allows for bank holidays, 27 days annual leave and 7 days of sickness, but no CPD time) and then by 7.5 to get the hourly rate. Whereas with a salary we tend to divide by 52 weeks then by 37.5 hours to get our figure. But don't forget that part-time and locum workers often end up doing things in their own time that aren't billable, and CPD, so even this is a very conservative estimate.

On top of that you'll have to pay national insurance, £2.65 per week for class 2 and 9% of your income once it tops £7600 per year. So budget 10% of your hourly rate disappearing there.

Then you'll have to spend time doing your accounts and books. You'll have to pay an accountant and/or submit a self-assessment tax return. These are time consuming things, even if you only budget 1 hour per week and one day per year for it. You'll also need to be able to pay tax as a lump sum twice a year, rather than have it removed from your income as you earn, so budgeting becomes more complex.

You won't get an NHS pension scheme, or any scheme at all, unless you buy a private pension. Similarly you won't get life insurance or critical illness cover. If you are sick you will have to apply for statutory sick pay (which is tiny). So make sure to budget enough to pay for an income in event of illness, plus perhaps life insurance and critical illness cover if you have dependants. You'll also need professional indemnity insurance (which is a good idea anyway) and professional registrations (which are also a good idea anyway). And if you pay childcare you'd need to do more complex accounts or you'd lose the benefits of the childcare voucher scheme.

So, lets pull some ball-park figures from a band 5 equivalent salary (£21,176 per annum). Salaried rate per hour is £10.85 for an employee. The rate you'd need to earn as a freelancer to be equivalent is £14.44 (from which you'd have to fund your own pension, CPD, life insurance, accountant etc). So, I'd say its unsurprising if posts seem to pay more, as I think you need to earn at least 1.5 times the hourly rate as a freelancer for the money in your pocket to be the same.

Also, there is a moral argument. If you believe in the NHS and public sector (as I do) and want services to be free at the point of need, and for profit motives to be kept out of the NHS, then why work for an agency? The nature of an agency is that they take a cut, and charge the service more and pay the person less than if there had not been a middle-man involved in the transaction. You could argue that agencies leech off the shortage in certain professional groups and the skills of the professionals who can fill them by adding little of value themselves.

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Content checked by a Team Member on 18/06/12. Last modified on 18/06/12

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