The Main Differences Between Self-Employment vs. Employment

By Indeed Editorial Team

Published 13 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The requirements of a self-employed individual and a company employee can be quite different. While both types of employment have their benefits, different people may have their own preferences between the two. Understanding what qualifies a person as self-employed and being aware of the various pros and cons of both employment types may help you choose your career path. In this article, we explore the differences between self-employment and employment.

What are the differences between self-employment vs. employment?

There are several main differences between self-employment vs. employment:

Taxes

Self-employed individuals declare their monthly income as a business income to calculate and pay their taxes. They also contribute to their Central Provident Fund (CPF) account on their own. For an employee, their employer is usually the one who manages their CPF contributions.

Benefits

Employees of a company often receive benefits on top of their regular wage and can benefit from a range of welfare coverage that might otherwise be quite costly. An employee often benefits from the company's insurance policy, such as health insurance and childcare benefits. If an employee travels for work, the airfare and insurance are usually claimable as well. Other deductibles may include transport, phone bills and expenses.

Self-employed individuals may not have access to such benefits as they don't work for a company that employs them. They may thus incur additional work-related expenses. As such, it may be a good idea to consider the possible financial difference caused by such benefits when thinking about self-employment, in addition to the difference in base salary.

Related: What Is a Salary Breakup? (Plus Definition and Components)

Job security

Employment in a company ensures a regular workflow and regular salary. Additionally, as of 2021, the Ministry of Manpower has employment laws that prevent abrupt and unfair dismissal of employees protect them from suddenly losing their income. Employees usually know well in advance if they're going to be dismissed, typically in a window of two weeks to a month. The stability as an employee is usually ideal for people who are in charge of non-working dependents such as children or spouses. This is also good for those who enjoy a sense of stability and security.

Self-employed individuals may not enjoy the same sense of stability as those who work in companies. To have regular work, self-employed individuals may build a customer base of regular clients that engage their services. Their customer base may grow rapidly if the professional can produce a high level of satisfactory work each time. They can also increase the stability of their job by securing exposure, asking their clients to recommend them or anticipating when their work may be in high demand. Self-employed individuals may also want to plan in advance if they intend to save up for emergencies and retirement.

Working hours

Working hours for employees tend to be from 9 a.m. to 5 p.m. daily. Employers can also request employees to stay for overtime work, which they can receive payment for according to individual company policy. The job hours are mostly predictable and regular, and individuals are usually in the office during working hours. Employees can plan how they want to use their time off and get sick leave as well.

The working hours for self-employed individuals are a lot more flexible but can be a lot more fast-paced too. They can choose when they do their work and they don't have a set number of working hours. The contracting party usually doesn't pay self-employed individuals for overtime work, which may be quite common in certain types of work like freelance graphic design.

Work environment

Employees are usually in their workplace for the duration of their work. This facilitates discussions between colleagues and allows their supervisors to oversee their work. Sometimes, there might be company events or celebrations that the employed person can attend.

A self-employed person, depending on the type of self-employment, may work in an office if they're a business owner. They may also not have a fixed working location and may resort to working at home or cafes. They may have more freedom to decide how to set up their working area, which may not be the case for company employees.

Related: What Is Employee Experience? (With Benefits and Tips)

Responsibilities

Employees usually go through an interview process, where interviewers check if they have the necessary skills to contribute effectively to the company. Employees often receive work that's only within their job scope to complete during their working hours. A self-employed person is in charge of not just the regular job scope of their business but everything other component of their business.

Related: 10 Employability Skills You Can Develop (With Definition)

What is self-employment?

A person is self-employed if they own a business, or work independently from a company. A self-employed person doesn't work under a contract of service under an employer, while an employed person does. Self-employed individuals typically collect payments directly from their clients and their job usually doesn't usually involve a regular salary payout.

Some examples of self-employed jobs include business owners, private-hire car drivers and tuition teachers. A self-employed person may also be a partner in a business partnership, in which members of the partnership are self-employed. A self-employed person may face different government requirements, such as paying different types of taxes or requiring different licenses depending on the business they're running. They may also be eligible for different types of financial help and protection for their business.

Related: SME vs. MNC: Definitions, Benefits and Key Differences

What are the different types of self-employment?

There are a few categories of self-employment that a job can fall under:

Freelancers

Freelancers are the most common type of self-employment. Freelancers often do work that they're passionate about or are too niche to be an employed job. They can decide their work schedule and workload and can reject jobs that do not suit their schedule or interests. Their jobs can be irregular and unpredictable, as it depends on their client's needs.

Freelancers often seek out jobs on their own. They may do this by asking close contacts if they require their services through word of mouth or by browsing through listings on employment portals. Examples of freelancers include direct sellers, private-hire drivers and writers.

Related: What Is Freelancing? With Advantages, Disadvantages and Tips

Independent contractors

Contract work is usually more common for self-employed individuals who work on bigger projects, such as home repair services. Projects, both short- and long-term ones, usually take longer to complete and typically pay more than freelance work. The contract acts as written proof to protect the financial interests of both the contractor and their client. The contract may also clearly state other clauses that are specific to the contractor‘s field of work, such as safety hazards.

Casual labour

Casual labour refers to temporary hires who work for a period of time or for specific events. They can choose what events to work at and arrange their own schedule in the same way as a freelancer. Usually, accepting a gig would mean that they have guaranteed employment for the period of the event.

A sub-category of casual labour is seasonal employees. Seasonal employees experience high and low workflow depending on the season. For example, freelance tuition teachers may experience more work nearing the exam period, or event facilitators may experience more work during the holiday season. As seasons are often predictable, seasonal employees are better able to plan their income flow and work schedule than regular freelancers but may experience months of little work during off-season periods.

Related: What Is Casual Work? (Types, Payment and Strategies to Find)

Business owners

Business owners run a business or are part of a team of business owners, sometimes known as being a partner in the partnership. They help to run the business, such as interacting with clients and formulating business plans to help their business grow. Usually, they can set their schedules, but they may have less flexibility if they have business partners.

Related: 5 Common Types of Employment and How They're Different

Pros and cons of self-employment

The greatest benefit of self-employment is the ability to work in an area you're passionate about. Self-employment is also great for those who desire flexibility and the ability to control their working hours. Self-employed individuals can focus on things that matter more to them, such as work-life balance or career objectives.

Most self-employed people typically pay for their own work-related expenses and they're also responsible for the financial losses and profits for their own businesses. Their work schedule may be more flexible but also more fast-paced, as they don't receive overtime pay or paid time off, unlike their employed counterparts. They also don't enjoy benefits provided by a company that could greatly assist their financial situation.

Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed.

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