March 25, 2019
Opting to leave a traditional job to become an entrepreneur or solopreneur looks very attractive to many people. According to
, 57 million U.S. workers are part of the gig economy. This represents 36% of our workforce.
Even so, some entrepreneurs and solopreneurs are finding that the grass is not greener on the other side. Freedom from a traditional job comes with a price. Gig workers walk away from the safety of a:
- Steady pay check
- Healthcare and other benefits
- Team collaboration
There are a lot of benefits to receiving a steady paycheck. Since you typically know, or can estimate, how much you will be paid each period, it is easier to budget. If you know what you will have and when, cash flow can be better controlled.
Although some gig workers have a good idea of how much they will earn on a monthly basis, others do not because of numerous variables including, but not limited to:
- Inconsistent project flow
- Seasonality of the work
- Slow payments
- Poor cash flow management
- Unexpected expenses
- Customer losses
- List contracts
- Production and operating expenses
- Increased operation and human capital costs
- Government regulations
- Tariffs and trade agreements
Deviations from projections a in any of these categories could send an entrepreneur or solopreneur in a very different direction than he/she may have planned.
Healthcare and Other Benefits
The cost of health insurance alone should be enough to keep everyone working at traditional jobs. I spoke to one solopreneur who experienced a $5,000 increase in her health insurance premium when she turned 60! She now pays nearly $30,000 per year in insurance premiums for her and her husband.
This couple has what some might consider a “Cadillac” plan (although it was not purchased through the healthcare exchange). Almost everything is covered once the deductible ($1,500 individual/$3,000 couple) is met. The plan includes a Health Savings Account (HSA) to pay for qualified expenses with pretax dollars. Even though the plan is rich in benefits, the insured will be challenged to pay the monthly premium.
An article published on CNN Business on August 23, 2018, entitled “
Gig economy workers need benefits.
” by Lydia DePillis, highlights some of the companies that are providing resources for small business owners and gig workers. The article points out that: “millions of American workers don't have access to health insurance through an employer.” According to the
Bureau of Labor Statistics
, that applies to three out of four people who work for contract and temporary help agencies as their main job, as well as 10.6 million people whose primary source of income is independent contractor work.”
Another article published on eHealth on July 13, 2018 entitled, “
Self-employed Health Insurance for Gig Economy Workers
” offers options for entrepreneurs or solopreneurs including: major medical or Obamacare insurance, short term health insurance, medical indemnity insurance, accident insurance, and critical illness insurance. Companies such as
are popping up to help gig workers find providers of healthcare insurance, as well as other sought-after benefits.
The U.S. Department of Labor (USDOL) released a final rule on June 19 that allows small businesses to join forces to form
association health plans (AHPs)
. According to Labor Secretary Alexander Acosta, AHPs “are about more choice, more access, and more coverage.” Association health plans work by allowing small businesses, including self-employed workers, to band together by geography or industry to obtain healthcare coverage as if they were a single large employer.
"To a certain extent, your co-workers are your social circle. Sometimes it is hard to explain to others that all your friends are online." - Cody Jones
Gig workers can become isolated and lonely because they no longer have a team of people to collaborate with on projects or meet at the water cooler. Although most remote workers are initially excited about working from home (in their PJs), the thrill typically fades quickly due to the lack of quality interactions with co-workers. As explained in an article by Melanie Pinola published on March 23, 2017, on Zapier entitled: “
The 7 Biggest Remote Work Challenges and How to Overcome Them
”, workers should make an effort to:
- Include social breaks in their schedule
- Try working at co-working spaces or coffee shops
- Be more intentional about joining local groups or organizations
Working in the gig economy is a trend that will most likely stick around for a while. Although there are challenges, there are also be great rewards. As with any decision, it is advisable to weigh the costs versus the benefits. You just might be surprised by the results.
As always, feel free to call anyone on our team to discuss your situation at 610-828-1900 (PA) or 732-341-3893 (NJ) with questions. You can also contact David Gibbs, CPA, CCIFP, MBA, partner at
or me at
. We are happy to help.
Martin C. McCarthy, CPA, CCIFP
McCarthy & Company, PC
This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).