Do you do ‘gigs’ and contract work rather than a full-time job? Whether you call yourself a freelancer, contractor, or sole proprietor, you can probably agree that one of the clear downsides of your work situation is the fact that you don’t receive any employee benefits.
Freelancers tend to have more flexibility and control over who they work with and how much they earn, but it still stings to not be offered medical and dental benefits, paid time off, and retirement plan options.
Yet and still, you can work to create your own benefits package to provide some relief. Here’s what you can do.
Healthcare
Healthcare coverage is one of the main concerns freelancers have. Just because you don’t have an employer providing you with options and offering to pay some of the premium doesn’t mean that you should take the risk of being uninsured.
At the time of this article, the healthcare system seems to be up in the air right now but granted, the open enrollment period is usually toward the end of the year allowing you to sign up for a new health plan.
The best place to shop and compare your options is at healthcare.gov but you can also check out freelancersunion.com. If you are in good health, you may want to consider choosing a high deductible plan which will provide you with a lower monthly premium along with the option to contribute to a health savings account (HSA). HSAs provide plenty of tax benefits, but also allow you sock money away in an account that can be used for medical expenses in the future.
That way, if you’re faced with a big bill, you’ll have the funds in your HSA to cover it.
If you are unable to secure an ideal health care plan or you need coverage when open enrollment has ended (ie. now), you can consider signing up with a health sharing ministry.
Faith-based health share ministries like Liberty HealthShare and Samaritan Ministries are not insurance but still can provide you and your family with coverage for medical expenses. Instead of sending your bills to an insurance provider, with a health share ministry, you send your bills in and they are shared among other members.
You pay a monthly payment (premium) which then gets shared with other members to cover their medical expenses. Health share ministries are often cheaper than traditional insurance so it’s worth looking into if you’re self-employed.
Fund Your Own Sick and Vacation Days
Everyone needs to take time off every now and then. As a freelancer, when you don’t work, you don’t get paid which makes it hard to take a sick day or go on a vacation.
It can also be scary to think about what you would do if you were unable to work for an extended period of time. It’s not like you could take a leave or apply for disability or unemployment.
To create some more security and peace of mind, you can set aside funds to create your own paid time off package.
Calculate how much you warn during a typical workday. Then, multiply that by 3 and set the amount aside in a savings account so you have enough funds to cover 3 sick days. You can do the same thing for a vacation fund or even work ahead with some of your clients.
I always try to take a week or two ahead on client work so if I ever need to change my schedule or take time off, I won’t have to worry about my cash flow.
You’ll also want to keep several thousands in your emergency fund should you ever face a huge unexpected cost or need to take time off from work. Having 3 months of living expenses set aside will put you at ease if you can’t work for a period of time. Make sure you’re pricing your freelance services for profit and living below your means so you can set up automatic transfers to beef up your savings.
Set Up Your Own Retirement Account
Finally, you’ll want to set an individual retirement account (IRA) since you won’t have an employer-sponsored 401(k). Your best bet is to open either a traditional IRA (funded with pre-tax dollars) or a Roth IRA (funded with taxed dollars). The maximum annual limit to contribute to both of these options $5,500 or $6,500 if you’re 50 or over.
You can also consider opening a SEP IRA which is designed specifically for people who are self-employed. With a SEP IRA, the contributions are tax-deductible and your money grows tax-deferred. You can contribute up to 25% of your income, or $55,000 each year (whichever is greater).
Summary
Creating your own benefits package as a freelancer will definitely require more of your involvement and it will cost more which is why you should price your services accordingly.
Don’t be afraid to ask for raises and factor in the costs of healthcare, retirement, and savings for sick time, vacations, and emergencies when you’re quoting your price for projects.
