In this video, I talk to you about the hidden costs that are involved in switching from a permanent role into a freelance Business Analyst consultant or contractor. You should make sure that you take these hidden costs into consideration before you make the jump!
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If you’re a practising business analyst who’s working at a full-time permanent job right now and you’re considering going freelance. This video is for you and going freelance basically means that instead of having a full-time permanent job what you do is you take on jobs on a contract basis that lasts a certain amount of time and you’ll have no employment relationship with the employer. So your employer is basically hiring you like a vendor instead of hiring you like an employee. And from an employer’s perspective, there’s a huge difference.
So in this video, I’m going to explain to you some of the major benefits. But mostly I’m going to talk about the drawbacks because I think that what happens to a lot of people a lot of analysts who are working full-time what happens to them is that they see the number, they’ll see the hourly rate that a freelancer business analyst makes. And that starts to become the only decision that is going to drive whether they’re going to become and a freelancer as well. And so they only use pay the hourly rate of a freelancer as the determining factor of whether they should start freelancing or not. And there are that’s a mistake first of all if that’s what you’re considering doing. And in this video, I think you should. Understand all of the hidden costs of what it means to be a freelancer.
Stability of Work (Freelancer, Contractor, Consultant)
So the things that most people don’t typically think about number one is the stability of work. I know it occurs to you and you’re probably thinking about it but you might be overly distracted by the actual hourly rate of an analyst.
So let’s talk about the stability of work because as a freelancer you have no stability of work right as a full-time employee. You’re a full-time employee and you’re on the payroll and you know you basically have a job right. Barring any extenuating circumstances, you know a company goes out of business or they run out of money or you know they’re having layoffs outside of those situations as a full-time permanent employee. You know that you have a job indefinitely. As a freelancer, it’s a totally different mindset because you know that as soon as your contract date is up you’re very likely going to have to strike the job search process all over again. And so as a freelancer as a contractor as a consultant business analyst you’re constantly having to look for work. And so one of the things that you have to consider here is that finding work and doing interviews becomes part of your skillset.
So not only now are you doing the analysis work you’re not only building up skills to do the actual work of an analyst you have to turn job search skills and interview skills and business development skills as a totally different skillset, right, as a full-time employee. That’s like a one-time thing you would do and that would probably last you know five six seven 10 20 years, as an as a freelancer you do not have that. So you have to now take on the burden of having to learn an additional skill set on top of your business analysis skills that you’re trying to pick up. So that’s the first major drawback or some people would see as a drawback of being a freelancer.
Hidden Costs of Freelancing, Contracting and Consulting
Let’s talk about pay. All right. So. When you look at an hourly rate of a business analysts and you try to convert your own full-time permanent salary into an hourly rate.
You’ll see that the freelancer’s hourly rate is probably going to be close to double what you’re making. And that might, if you’re just looking out at the surface level that might lead you to believe that freelancers are making really ending up with double the money that you’re making and that’s totally not the case because there are a lot of hidden financial costs of being a freelancer that a lot of a lot of people don’t know about. And the biggest financial cost is the fact that you do not receive any kind of pension. You do not receive any kind of benefits when you’re a freelancer. Great source a full-time employee. Most employers out there offer their employees things like a pension.
So if you’re contributing to your 401k in the U.S. or to your pension plan here in Canada, if you’re contributing as part of your as part of your payroll your employer will also contribute to that. And so they’re giving you money for your retirement. That’s not showing up in your pay stubs. It’s not showing up in your bank accounts when they pay you right but that’s money that’s going directly into your bank account and that’s one of the things that you don’t have as a freelancer.
If you have a family, If you have a significant other and you have children a lot of employers will offer health benefits right. Health insurance and the insurance doesn’t often times cover just you but it covers you and all of your family.
So it will cover your significant other. It will oftentimes cover your children. And that is again another thing that as a freelancer you just don’t have you have to take the money out of the pay that you’re making and you have to purchase your own health insurance.
Life insurance is another one. Right. Are you Are you have your life insurance. That’s another thing that you basically get to think about that as a full-time employee you wouldn’t have to think about because it’s just oftentimes, it’s just there right when it comes to retirement savings.
The thing that there is another skill set they have to learn. If you want to be a freelancer right. Because as a full-time employee what your employer does is they hire an investment company to manage your pension plan. Right. So when you’re contributing to your pension as part of every pay stub or every time you get paid that goes into a fund and your company your employer has hired another investment company to manage that money right. That’s a cost that the employer has to pay. That’s a cost that you don’t have to worry about. As a freelancer you have to bear that additional cost.
So either you have to go and find yourself a really good financial adviser to help manage your pension for you which is going to cost you money or, Not Or -actually in addition to that you have to learn how investments work.
So you have to learn about the different types of funds, you have to learn about, you know how much risk are you willing to take, how much financial risk are you willing to take with your retirement plan because your financial adviser is going to work with you to try to help you figure out what your retirement is going to look like.
You take on that entire burden of the knowledge and the costs and everything else that goes along with managing all of the stuff that is covered for you by your employer and a lot of cases and so as a freelancer you’re taking on that extra burden as a full-time employee. You’re probably not even thinking about it. It’s all just happening in the background and you’re focusing strictly on your work. Right. So that’s another hidden cost.
Basic Life Support
The third one is something I like to refer to as just basic life support. As a freelancer you have zero life support from your employer. Right. You have zero life support from the government so if you become unemployed for example if you go through a long stretch and you’re not able to find a contract to do any kind of work you’re not eligible in Canada and in the United States as far as I know you’re not eligible for employment insurance if you are a freelancer. You have to be a full-time permanent employee who has lost their job as no fault of their own to be able to be eligible for employment insurance. And so when you’re taking that you know when you’re getting double the rate right. As a freelancer, it’s not like it that you know that all that extra money is just extra money for you. You have to set aside the large portion of that to mitigate the risks of you not being able to find work for extended periods of time. Right. And so the financial benefits of becoming a freelancer start to melt away when you start to take into consideration all of the hidden costs and all of the extra work that you have to do to maintain the same life the same quality of life as a full-time employee.
Once you factor all of that in the freelancer rate doesn’t look as-as attractive anymore. Right so. And so if you’re at the point in your career where you’re trying to decide should I become a freelancer for the extra money take all of those points into consideration.
Should I Become a Freelancer?
Number one job stability are you good at finding work. If not freelancing might not be the right, might not be the right option for you. Number two pay it’s not as attractive as it might seem on the surface. And number three if you have the life support from your employer and some employers do a really good job of this is that they are very forgiving you know if you’re sick you can hook you just call in sick you have a number of sick things as a freelancer you don’t have that benefit if you’re sick you don’t get paid for that day. Right. So take that into consideration and make a very wise decision if you have any questions about this.
You can ask me you can just put it in the comments and I’ll try to answer the questions for you. But if you’re at this point you make the very calculated decision for yourself to make sure that you’ve taken your family into consideration you’ve taken all of the hidden costs into consideration when you’re making this decision.