Employee or Consultant: Which Suits You Better?

Are you at a point in your career where a transition from permanent employment to independent consulting or contracting might make sense? At EM Marketing, we talk to lots of folks in this position, and it can feel like a big jump to start your own business. From financial to personal questions, here are a few things you should consider. (You may find a slight bias in our notes below!)

Reasons to Be an Employee

• Continuity. Being an employee does offer more continuity than being a consultant. Consulting projects are by nature short-term projects centered around deliverables.
• Security. Many people feel more secure as an employee (though job security isn’t a given anymore).
• Fringe Benefits. Many companies offer benefits such as health care, retirement, vacation, paid holidays, sick leave and childcare subsidies to their employees. Of course, many of these are not requirements.
• Easier Taxes. Income and social security taxes are withheld per pay period. The employer pays half of the social security taxes, and all of the unemployment insurance tax. In contrast, independent contractors are responsible for estimating and paying quarterly taxes for themselves (including self-employment tax – which is the social security and Medicare taxes similar to those withheld from paychecks of employees).
• Workers Compensation. Companies pay for workers compensation insurance which means employees are covered in case of injury or sickness on the job and coverage may include medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement (retraining) and death benefits.
• Career Advancement. It may be more clear to see opportunities for climbing the corporate ladder, increasing responsibility or becoming an expert in a single area within a company.
• Camaraderie. You’ll likely feel more connected to a team and build deeper relationships as an employee.

Reasons to Be an Independent Consultant

• Work/Life Balance. Full-time employees are typically in the office five days (working ~50-70 hours) a week and deal with a regular commute. Consultants can often choose where they work, limit the number of days and times they go into a client’s office and schedule off-peak commutes.
• Control. You are your own boss. If you would rather not work on a project, you can decide not to take it.
• Varied Experiences/New Skills. Consultants have the opportunity to work with many different types of organizations in various capacities, and because of this, new skills may be developed. These experiences can accelerate career advancement and offer greater flexibility for future employment down the road.
• Deductions. Independent contractors may end up in a better tax situation if they understand how to take the right deductions. Contractors are businesses whether they set themselves up formally or not. By default, they are sole proprietors and may be able to deduct expenses such as mileage to and from their client site, meals with clients and collaborators, home office and equipment expenses, the employer equivalent portion of the self-employment tax, health insurance costs, etc. (Be sure to consult a tax professional to determine which expenses are legitimate.)
• Fewer Requirements. You don’t have to pay for unemployment insurance or be covered by workers compensation. (On the other hand, you may want to get workers compensation insurance for yourself to protect yourself in case of injury or sickness.)
• Fewer Meetings. As an independent contractor, you may not have to go to as many meetings and attend to the same level of politics. Of course, if there are meetings that would benefit your project, you should go, and a healthy awareness of the politics can only help your project. But you may notice that you have fewer “useless” meetings, and that the politics won’t bother you as much!

Taking into account your own situation — what you value in your career and life, your skills and your general approach to work — will help you decide what’s best.