The True Cost of Self Employment

By: Kenny Herbold - [business]
By Kenny Herbold
http://work-at-home-jobs-missouri.com

I grant permission to publish this article, electronically
or in print, as long as the bylines and all active links are
included as is, and the article is not changed in any way.

Do you think you are ready to make that leap to full
self-employment? The profit from your part-time (up till now
:-) business is matching or exceeding your regular paycheck,
so you think it's time to fire your boss and make do without
that paycheck. Before you take that final step to personal
freedom, make sure you truly understand what you are giving
up. Your employer paid benefits may cost you more than you
realize. For many people it will take more than $40,000 of
profit per year to replace a $40,000 annual salary.

When I talk about your employer paid benefits I'm not
referring to the ''free'' office supplies, subsidized soft
drinks, or even the occasional free meal at the holiday
party. The items that you need to consider are the benefits
that are going to cost you the most money. Although if you
really like soda I guess you might want to include this too!
According to a survey published by the US Chamber of
Commerce in January 2004, employer paid benefits averaged
42% of an employees salary in 2002. That means you need an
additional 35 - 45% more than your current salary to make up
for these lost benefits.

If this number shocks you, then let's take a look at some of
the typical benefits employers provide. Again, based on the
US Chamber of Commerce's survey medical insurance cost
approximately 15% of an employee's salary. However,
employers also cover the cost of many other forms of
insurance. They include

# Disability,
# Dental,
# Vision,
# Life,
# Unemployment,
# Long Term Care Insurance, and
# Workers Compensation

You might be thinking that you pay premiums for these
products already. Even if you do, your employer is most
likely paying the lion's share of the cost. Not to mention
that many times the premiums you are paying are using
pre-tax dollars. This means you end up paying less in taxes
because the amount of your premium is deducted prior to
calculating your taxable income

When you own a home-based not only are are you going to be
responsible for the full cost of all forms of insurance
using after-tax dollars, you are going to be responsible for
self-employment taxes. Self-employment taxes include the
employer paid portion of Social Security and Medicare taxes.
This means your bill for these taxes are going to double.
Instead of paying 7.65% of your income for these, you will
now pay 15.30%. And don't forget about having to pay
estimated taxes. You will have to file and pay taxes 4 times
a year now, instead of just once. Not only do your taxes
increase so do the headaches and the cost of filing!

The second highest benefit cost is your retirement benefits.
Your employer's 401(k) match guarantees an immediate return
of up to 100% on your money, depending on how much your
company will match and how much you contribute. If your
company has a defined benefit pension plan, you are losing a
guaranteed income in retirement. You are also taking on the
additional risk because you are 100% responsible for
investing the money to replace it.

These are only a few of the largest items that make up the
30 - 40% of your salary that will become your responsibility
when you become self-employed. Your company might be paying
for many other perks also. Some other things you might want
to consider are

# company car (this includes gas and maintenance),
# annual or performance bonuses,
# professional training or expenses(including professional
journal or society dues),
# software licenses that let you use programs like Microsoft
Office programs on your home computer,
# vacation pay (that's right, you no longer get paid when you
take days off)

All of these, and any others you might be able to think of
will needed to be included in the total cost of becoming
self-employed.

I hope you don't think I'm trying to discourage you from
finally being able to become your own boss. I just know that
the excitement of finally making this move can make us
forget about some of the ''extras'' we are receiving. You are
considering a very serious change and need to make sure that
the benefits are going to outweigh ALL of the costs.

Kenny Herbold is a benefit plan consultant and internet
entrepreneur. To help calculate
the real cost of leaving your job behind visit
http://www.BenefitInfoPage.com

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