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 2001 study
conducted
by the US Chamber of Commerce, employer paid benefits average 35 – 40%
of an
employees salary, depending on geographic location. That means you need
an
additional 35 – 40% 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. One of the main components will be health
insurance. 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!
Another big-ticket item 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
license 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.
About the
Author:
Kenny Herbold
is a benefit plan consultant and internet entrepreneur. To
find out about THE single best program to truly Be Your Own Boss visit
http://www.work-at-home-jobs-missouri.com.
To help calculate the real cost of leaving your job behind visit
http://www.BenefitInfoPage.com
