23 Disadvantages of Self-Employment

Countless employees dream of leaving behind a demanding boss, working from home, and earning a limitless income. Self-employment, however, is not the same as a life of leisure. As was already pointed out a few months ago, much of the mythos surrounding self-employment is simply mythical. Businesses that promote work from home “opportunities” thrive on our desires to be our own boss or have more time to ourselves. These companies emphasize the benefits of self-employment, but downplay or simply fail to mention the downside of working for yourself. Before you quit your day job, take into consideration these twenty-three disadvantages of self-employment:

1. Small business owners pay more taxes than employees. Even if you keep your business small, employing only yourself, you will find your tax bill increasing. In addition to regular income taxes, you will have to pay both the employee and the employer portions of the social security taxes and extra local business/mercantile taxes (some in the form of licenses). You will likely be paying quarterly estimated taxes, and if you sell something, you are responsible to file sales tax forms. Those last two requirements might not add up to more money, but they will add up to more time spent calculating earnings and filling out forms.

2. When you work for someone else, not only does your employer cover half of social security, but the company might also offer other financial benefits, such as a company match for a 401(k) plan or opportunities to purchase company stock at a discount. When you work for yourself, you lose these opportunities to increase your salary. Any money saved for retirement plans or invested in the stock market comes directly from your own earnings.

3. The self-employed also miss out on paid days off. When you wake up with the flu, you lose out on the earnings for that day. Not only do you have no paid sick days, you also have no paid vacations – and you may miss out on vacations entirely. As Amy pointed out, running a small business is hard work. To make enough money to live on, you will have to put in many, many hours, especially when you first start.

4. Also on the line of benefits, you will have to pay for your own health insurance. Many would-be entrepreneurs continue to work for someone else simply because they can’t afford to buy health insurance and they don’t want to risk debilitating medical bills.

5. Not only do you go without certain personal benefits, you also miss out on some of the benefits longstanding businesses enjoy. For instance, you will not have an established inventory or client list. Even if you bring some clients with you from your previous employment, you will have to spend time and money building assets and a customer base.

6. Unless your business is a franchise, you will have little or no name recognition when you start, and you will have to work hard to build the company’s reputation as you build a customer base.

7. While building your business reputation, you will likely be competing with bigger, more established businesses. These big businesses have more resources and are better able to offer a greater variety of services and/or better prices than you will be.

8. If you cannot afford to hire others right away, you will need to do multiple jobs. In addition to doing the work that actually makes you money, you will spend time in marketing, accounting, and billing among other things.

9. Long hours, already mentioned in #3 above, come along with these extra jobs and the effort of building a business. You may have expected to spend more time with your family, but that benefit of self-employment usually occurs several years past the start of the business — if ever. People employed in nine-to-five jobs often have more time for their families than full-time self-employed people.

10. You have to dedicate time to a new business, but you also have to dedicate money. Some self-employment opportunities (such as freelance writing) have very low start-up costs, but others (retail stores, restaurants) require entrepreneurs to commit a lot of upfront money to the business. Depending on the structure of the business, entrepreneurs may need to risk their existing assets to gain the advantages of self-employment.

11. Not only do small businesses have start-up costs, but they also have ongoing costs for which business owners are responsible. For example, you need to maintain (and likely upgrade) any equipment required to do business. As in personal life, unexpected repair bills can come at any time.

12. When you are the boss, you are also financially responsible for any mistakes you make. While big enough screw-ups can get you fired from an employer, even small errors — miscounted change, misprinted advertisements — can cost business owners.

13. Likewise, non-paying clients are more likely to be financially detrimental to you personally when you are self-employed than when you work for someone else. Unless the deadbeat customers bring in enough business to create layoffs in a larger company, employees are still paid for their work; self-employed people lose income (and often expenses, as well).

14. While the self-employed have the advantage of multiple streams of income, they also need to keep track of multiple clients and contacts. You might think you work for yourself, but really, you are accountable to many people. To maintain a good reputation, you have to meet deadlines and exceed expectations for several — usually unrelated — customers, suppliers and creditors all at the same time.

15. Based on the previous disadvantages on this list, you probably have figured out that in order to be self-employed, you need a lot of self-discipline. Having the flexibility to make your own schedule is nice, but the temptation to do something more fun is always there, and if you slack off too much, you won’t succeed in your new business.

16. Even if you are self-disciplined, most small businesses have limited work or business opportunities. Even if you work for a home demonstration company that offers the support of a larger organization, there are only a certain number of people within your extended social circle who are willing to hold parties and only a limited number of new people who can be invited to those parties. Tupperware parties are far less common than they were a few decades ago, probably because everyone who wants Tupperware has already bought it or inherited it from their parents.

17. When you aren’t employed by someone else, you are often ineligible for unemployment insurance when the work slows down (though under certain conditions you can get Disaster Unemployment Insurance from the Department of Labor).

18. With limited work opportunities comes unsteady pay. Forget about knowing to the penny how much will be on your paycheck and when, exactly, you will receive it. You might be busy at one time of the year and have no work at another time; national economic conditions might have a strong effect on your business. The lack of a regular paycheck requires self-employed people to be better-than-average money managers.

19. While you can work in your pajamas when you work from home, you also never leave work. If your business requires you to leave home, you have to find and pay for the work site, adding a second mortgage or rent payment to your existing bills.

20. If you run your business from home, you also need to set aside some physical space in your house or apartment to do business. Even if your business does not have a physical inventory, you still need to have an area to file business-related paperwork and store any equipment you use for work.

21. In addition, skipping the commute is often cited as a benefit to self-employment. Working from home does save time, gas, and money, but it also eliminates the time a commute provides for you to shift thinking from business matters to personal matters. Whether you spend your commute listening to music, reading on the train, surfing the Internet, or making business calls, the time spent in transport offers a physical action to accompany the mental gear-shifting that takes place during that time. Without a commute, you may find it more difficult to maintain a balance between work life and home life.

22. You may also miss the social contact you get from working outside the home. Though you might not want to deal with office politics, going to work every day offers opportunities to build friendships and reduce isolation. Self-employment that offers frequent contact with customers or clients may eliminate some feelings of isolation, but it does not provide the same level of camaraderie as working alongside others over an extended period of time.

23. While you are working long hours, taking financial risks, and dealing with the mental challenges of self-employment, you may also have to fight negative labels from those who think you should “get a real job.” Whether from jealousy or misperceptions, many people think that “self-employment” means “self-gratification” and imagine that those who call themselves self-employed simply spend a lot of time pursuing leisure activities, working only when necessary. Some may dismiss what you do as something anyone could do easily, downplaying the work and skills that are involved; others will say, “I wish I could afford to stay home” in a tone of voice that implies your success is all luck and no hard work.

Self-employment is not all bad; if it were, far fewer people would even try to work for themselves. Those with persistence, intelligence, marketable skills and an entrepreneurial spirit will find that the positives outweigh the negatives. Self-employment is more likely than salaried work to reward those who work hard and have innovative ideas. (If you create a great new product while working for someone else, you will create profits for that company, but your salary isn’t likely to increase much. If you create a new product and start your own business to market and sell it, the profits go to you.) Though hours are long for the self-employed, they are flexible enough to make possible attendance at special events (such as children’s sporting events). Perhaps the best advantage is that those who are self-employed get to make a living doing something they enjoy. That advantage alone might make the disadvantages bearable.

This entry was posted in Work and tagged , , , , . Bookmark the permalink.

19 Responses to 23 Disadvantages of Self-Employment

  1. fern says:

    Excellent article and i can say from personal experience, all very true. That is why, though so many people dream of working at home, or in their own business, that’s it’s really not for most people, especially if you don’t know what to do or have a product or service people will pay for.

    #1, 2 & 4 are of course the most important points. The taxes make it just not worth it unless you’re committed to doing it full time.

  2. A Marino says:

    Your article was on point. My husband has been self-employed for years now and most people think that we are so lucky. We have to pay full insurance coverage. For us now for 2 people $1,432.70 a month that doesn’t cover any doctors, prescriptions, tests, or anything. We would have to first pay $500. deductible for each illness. Also, like was said, 15.3% Social security, not 7.65). No workman’s comp because we can’t afford it. No unemployment insurance, no holidays paid, no holiday time, no 401K’s, no vacation pay, no sick time, and on and on it goes.

    I think one of the worst parts is that because you are self-employed your friends and family think that you can drop whatever you are doing to talk or do something for them. Their attitude is that you don’t punch a time clock.

    It’s not a bad life, but you really do have to be self-motivated, responsible about your jobs and keeping your taxes paid promptly.

    Alot of financial planners will advise some couples to build a home business because of its many deductions. It is important to have another paycheck coming in regularly and to have one of the couples that can handle much of the business at home at least parttime.

  3. Teri says:

    I was self-employed in college. Likewise, never saw the draw. Hated it!!!

    Likewise, I find all the advantages you listed by being an employee. Got the flexibility and love what I do. I am not sure why you would have to be self-employed to find those pluses.

  4. Amber says:

    boy do I know all of this from experience, both me AND my husband are self-employment. sure isn’t easy.

  5. Scanner says:

    This country is very hard on the self-employed for the reasons you outlined.

    Universal healthcare, while controversial, would go a long way in helping the venture capitalist/entrepreneur.

  6. A Marino says:

    When a self-employed person buys health insurance, he or she pays social security on it as if it was pay. The self-employed persons ends up paying 15.3 social security on his health insurance while the employee working for another employer does not pay these taxes. The self-employed person can deduct the health insurance on his return. Sometimes our health insurance costs have put us over the line with a next tax bracket.

  7. Pingback: Monroe on a Budget » Blog Archive » Saving Advice: 23 Disadvantages of Self-employment

  8. Betty says:

    Hey, I am a work-at-home mom, I can not totally agree with you. I think it is unavoidable for a mom to choose if she should not to continue to work outside of the home. For me, to be honest, it was fear at the beginning. Fear that I wouldn’t succeed. Fear that I wouldn’t be able to earn money. Fear that my family would suffer because of my decision. I think I am right that I have made the decision. Now my family and my job work well. My point is, most obstacles can be overcome. I overcame my obstacle and so can you.

  9. Shannon Christman says:


    I think you read more into my article than what I intended. I am also a stay-at-home-mom who works (part-time) from home to help the family make ends meet.

    I agree that working from home is the best option (and in some cases the only option) for many parents. I simply wanted to point out that self-employment is not as easy as many people try to say it is. I hope you’ll agree with me on that!

  10. Andy says:

    You pay the full social security bill whether you are self employed or not. Companies lower salaries to make up for the money they have to send to the government on your behalf.

    As for healthcare, if you think it’s expensive now, wait till it’s free.

  11. Paul says:

    Some of the points are valid and self employment isn’t for everyone. However every tax law is written to help corporations and if you are self employed as a corporation you will be way ahead of the game. Health insurance is completely written off, your 401k plan as the employer is written off, the withholding taxes as en employer, car, operating expenses, portion of the home work area, phones, gas, business meals, computers, copiers, printers, clothing, as well as vacations if you incorporate them into your business. Unfortunately thinking small minded is very dangerous. If you own your own business you have control of your life, your income, your retirement and you can pass it off as an inheritance…what do you get working for someone? Forced retirement? Leasing your time but not owning it. Be careful when people only give you part of the truth. When you work for yourself you should be passionate about it and if that is the case you will make much more money then working for someone or corporation that cares about the bottom line instead of you. Peace of mind, enjoying your work and keeping it balanced will not only be physiologically and physically healthier but you will be able to lay your head on the pillow each night with new hopes and desires to make you and your family a better life. I feel like I just read an article on being on welfare saying that we should allow other people to direct and choreograph our time, lives (which is mostly the amount of hours we work) and income. That is very sad. Please think again and make sure you incorporate even if you are an individual and take the steps necessary to get you and your family safely out of poverty.

  12. C Hodges says:

    I am a new entrepreneur (two years in) and I am so glad that I didn’t read an article equivalent to this one when I was starting my business. Sure, the facts are right but the joy and satisfaction of owning and running your own business far outweigh the sacrifices if it is run with a financially smart approach. Not to mention that I am a little taken aback that encouraging others to work for established large companies who monopolize and destroy small mom and pop businesses would take priority to encouraging people to take a chance. Thanks for the information but it is too bad that you feel people should play it safe rather than take risks!

  13. Pingback: 10 Reasons Why a Corporate Job is Better Than Taking the Entreprenurial Plunge | Agile Personal Development

  14. Akwa says:

    The findings are perfect

  15. Benson Bennet says:

    It is sad that you are discouraging start ups.I quit my job of 5 years of working in a slave like conditions in a car repair shop and with NO SAVINGS.I started offering a similar service(Engine service,oil change)behind a gas station of course i had requested the owner of the gas station since i was buying oil and other accessories from him,The business picked after two months and within a year i now have an estabilished business premises in a prestigious business address serving who is who in town.I enjoy the fruits of hard work,it is about FAITH,FOCUS,DETERMINATION,SELF SACRIFICE AND HARD WORK-faith breaks mountains,if you are dreaming it,go for it,do not be faint hearted.Two choices in life BE A WELL FED SLAVE work till you retire and wait for your pension enjoy you retirement Sadly as you wait for your last day or BE A HUNGRY FREE MAN,Struggle for some time,set your business,get well fed slaves for your business let them work for you as you enjoy you success as a well FED FREE MAN.Choose one WELL FED SLAVE OR HUNGRY FREE MAN!

  16. sushmitha ann says:

    good info which helped me a lot in doin my project.. thank you

  17. Everything in life has advantages and disadvantages. These are very valid points. Self employment is not for everyone. According to SBA, 50% percent new businesses fail within 5 years.

    That being said, advantages of self employment are also plenty. We are living proof of it. My wife and I are both engineers. After working 10+ years for others including as a hands-on engineer and later as a supervisor, I resigned in April 2012 to join forces with my wife to run our IT/Web consulting company full-time where I was working part-time since 2003.

    We work from home and plan to travel overseas since our business does not require us being psychically in New York or anywhere in particular as long as there is an Internet connection. Working hard & smart have helped us well: We do not have any debt! We paid off our home within 5 years of purchase, our vacation apartment within 3 years of purchase, our two cars within 2 years of purchase.

  18. Tony says:

    This author is right about everything. Unless you have a some really great sure-fire idea, or you know that the government is/will be willing to subsidize your business/industry (really, anymore, government subsidized industries are typically your best bet for a business), your ready to work non-stop & probably struggle big-time for a few years (& with the VERY strong possibility of losing everything/having NOTHING to show for all of your efforts & investments), can be reasonably sure that the world/environment around you won’t just suddenly viciously turn on you/your business (making your original plan/idea/concept impotent & unprofitable… which happens VERY often living in this increasingly fast-changing –in a way that’s usually unfriendly to small-business environment– that we live in), and all the other biz friendly ingredients for starting a business are present… I say that you are CRAZY to start your own business. The numbers don’t lie: over 90% (not 50%!) of all businesses fail within the 1st 5 years… all educated people know this. Furthermore, after your business fails, good like finding employment! Employers/HR departments totally shun the “self-employed”, and you are basically treated like somebody whom was unemployed (not self-employed) that entire time. And guess what, with each passing year, most employers & HR departments are becoming less willing to hire the “self-employed” (esp. since they can’t really genuinely verify your employment, job duties, work history, etc during your time at “your” own company). That point should have really been made & emphasized in this article: if you go the self-employed route, be prepared to suffer an even greater struggle & obstacle once your business fails and you have to go work for somebody else (not to mention all of the time you lost truly building/adding to your professional resume during those “independent” years… which are merely looked upon as just another “gap in employment/work history” by hiring manager, employers, HR departments everywhere!!!)

  19. Frederick Johnson says:

    Very well written and honest article. The bashers against this article are just a bunch of classist liars who don’t want people to know the full truth about self-employment. I’ve been self-employed too (15 years after working 30 years as a regular employee from job to job) but even when the economy was grand and I was good at it, it wasn’t always easy. I’m retired but I know it ain’t getting easy out there then or now.

Leave a Reply

Your email address will not be published. Required fields are marked *