The difference between rates and wages is not always clear to newly self-employed people and their wage-earning clients.
Both look similar on the surface; both are expressed in dollars and cents per hour. But they each represent something very different.
Wages are the payment a worker receives for his labor.
Rates are the payment a business receives for performing a serivce to a client. In addition to the labor used in performing that service, rates must cover the business's overhead.
Because of that, rates have to be higher than hourly wages earned by employees for comparable work.
Most newly self-employed workers are former employees. They are accustomed to receiving pay based on wages. Because they don't understand the difference between rates and wages, when they start out, they tend to set their rates too low.
To survive, your rates must be high enough to pay the bills and enable you to earn a living.
Some of the differences between a self-employed person's rates and an employee's wages are explained below.
WAGES
? If you are a wage earner, you are due an hourly wage just by being present and willing to work at a set time, for the period of time demanded by your employer.
Your wage is the payment for your labor.
? The employer supplies the necessary equipment and supplies for you to do the work. And, the employer supplies your workplace.
? You enjoy all of the legal and social protections due to employees such as Unemployment Insurance, and employer paid Worker's Compensation Insurance.
? Most full-time employees enjoy fringe benefits. These range from paid vacation and sick days, subsidized health insurance, retirement benefits, etc. to stock options and more to higher ranking employees at larger companies.
RATES
? As a self-employed service provider, you receive income based on your billable hours, that is, time spent on performing services for your clients.
? You furnishes your own supplies. Unless the service is one that is performed off- site, you supply your own workspace.
? You have to equip yourself to be in business and provide your services: You must procure and equip your workplace, invest in skill and product development, market your services, purchase business insurance, and handle billing, recordkeeping and collections.
? As a business owner you take on a great deal of risk. It is reasonable, and expected, that your rates should allow for a reasonable profit over and above your expenses and salary.
The above is true for any business. Below are additional costs you pay because you are self-employed.
? Unlike most of your employed counterparts, there is no employer subsidy for your health insurance. And, as an individual, your costs will be higher than they would be as part of a larger organization.
? Aside from Social Security, you are totally responsible for your own retirement nest egg.
? You will pay both the employee's and the employer's share of the FICA tax burden (15.3%); double the burden that falls upon your employee counterparts. The IRS allows limited deductions for this tax, but your net share is still far higher than for your employed counterparts.
But you can only bill for services rendered.
The upshot is that as a self-employed service provider you must cover many expenses that employees do not. Therefore you should have no qualms about charging an adequate rate to cover your expenses and make a living.
Ellen Zucker's site, http://www.selfemployment101.com, has articles and resources to help the creative sole-proprietor earn a living and create a life.
Have Ellen's articles directly sent to your inbox. Subscribe to The Self-Employment Lady.
Having a successful business means also having a good working... Read More
E-mail and Internet use are integral parts of the typical... Read More
If you discovered the bottom line in your business depended... Read More
Some things in business are relatively easy to measure ?... Read More
As a franchisor I am always asked by new and... Read More
Have you ever heard the phrase, 'PREPONDERANCE OF PROOF'?I recently... Read More
Bookkeeping?the "dreaded" word is something we all have to worry... Read More
Macon, GA goes after garage-gas station conversion detail/hand car washes... Read More
Pet Transportation Services are needed as the number of pets... Read More
How many "get rich schemes" have you joined? Or have... Read More
If you are in a franchise and have a territory... Read More
1. Have A Strong Constitution ? Justices deliver decisions by... Read More
As a home business proprietor, you may already realize why... Read More
Let me get right to the point. The single most... Read More
Expanding your business requires you to take a good hard... Read More
Franchising Corporations need to maintain an iron fist when it... Read More
When do annoyances in a relationship become too much to... Read More
Sacred cows take a long time to die. We get... Read More
Every company has a value proposition. That is a statement... Read More
Your business is only as good as the number of... Read More
Q: I will be retiring this year at age 60... Read More
How a donation is different from a sponsorship and what... Read More
Concrete cleaning can be a lucrative business to start. Here... Read More
How often have you thumbed through a business opportunity magazine,... Read More
More sales and more profit. Isn't that what you want... Read More
As a successful small business owner,you're accustomed to long hours;... Read More
As a small business owner, outsourcing work to Virtual Assistants... Read More
If you intend to franchise your company you will need... Read More
The Federal Trade Commission which governs the franchise industry thru... Read More
Over the years I heard the best way to learn... Read More
Multimedia is everywhere on the Internet, whether in the form... Read More
You are probably hard at work promoting your business (and... Read More
What unspoken message are you sending your clients and customers?... Read More
Here are a few tips on how to hand out... Read More
Here's why 'WHY' is such a profit-making marketing trigger."Stop taking... Read More
Increase your profit potential by identifying ? and avoiding ?... Read More
Don't let your customer satisfaction research initiative collect dust on... Read More
Last summer the FTC put forth a report and then... Read More
Small Business, Big Business ? What's the Diff?Well a lot... Read More
Approximately 200,000 new businesses are started each year. More people... Read More
Large corporations use employee manuals to both educate employees about... Read More
Franchisor expansion policies are not as simple as one might... Read More
Business owners rarely go into business to deal with the... Read More
During the 1980 presidential campaign, candidate Ronald Reagan vowed, if... Read More
What are the best methods for keeping a good business... Read More
Who is responsible for maintaining the business relationship?Nurturing a business... Read More
Starting and growing a small business can be a daunting... Read More
A suggestion box is a really good idea for your... Read More
Whether you operate a chain of restaurants, a mom-and-pop convenience... Read More
As an entrepreneur you can learn a lot by following... Read More
How do you make sure you have the business solutions... Read More
Boston itself covers 50 square miles of concrete and traffic,... Read More
Do you own a franchised business? Over 400,000 franchised businesses... Read More
A Brilliant Marketing Idea... sounds great but what is it?... Read More
For many small businesses, the "S" corporation is the business... Read More
Writing a business plan is a fundamental step to ensuring... Read More
Anyone in business today realizes both the natural dependency on... Read More
Becoming a contractor or sub-contractor for the U.S. government can... Read More
A Private Investigator is a professional trained in the art... Read More
You can make your trade show experience much easier by... Read More
We all know that a building has to have a... Read More
You've heard marketing and advertising gurus quip, "Sell the sizzle,... Read More
One of the biggest excuses franchisees of home based and... Read More
I recently met with a very successful magazine publisher who... Read More
As a solo entrepreneur or small business owner, one of... Read More
What's your job profitability? Do you know?Many business owners are... Read More
Small Business |