Written by Emilie Brunet
There are so many reasons to move to freelance, some of the pros include:
While all of that sounds amazing, it’s also important to recognize that being self-employed is not easy. It requires a lot of consistency, self-discipline, and motivation. But more so than all of that, it also requires that you take the time to ensure that you’ve got all your ducks in a row before taking the leap.
There are 4 main things that people often forget about when deciding to move to freelance. It’s important to understand how these concepts work prior to moving away from employed work to freelancing:
Sometimes people see a contractor’s hourly rate and they think, “Wow, $150/hour? That means if they work 40 hours a week, they are making over $300k a year.”
But the reality is that a contractor’s hourly rate is a number that includes their expenses (including their health insurance — see below) and most importantly, considers their working hours not just their billable hours.
A lot of freelancers only bill 20-25 hours week, and the rest of the hours of their work week go to the administrative work to maintain their business, market their services, communicate with clients, learning & development, etc.
Not to mention they also have to consider that their hourly rate must allow them to take time off and cover the expenses of their business.
You might “work” 40 hours a week, 50 weeks a year but you may only bill for 20 hours a week and 48 weeks year (sick days, vacation, emergencies, etc). And once you consider your expenses, that $300k/year gets halved pretty quickly.
What this means: Before you make the jump to freelance you have to take the time to figure out what is a realistic number of billable hours you can do in a week, consider your business expenses and how much time off you expect to take off per year and then calculate an appropriate hourly rate from there.
There are two taxes that you need to be mindful of when working as a freelancer: sales tax and income tax.
Different than working for a company, as a freelancer you have to take responsibility to put aside a certain percentage of your income for taxes at the end of the year. This can be anything from 25-50% of what you actually bill your client. It’s good to put this money aside into a high-interest savings account so you aren’t completely taken off guard at the end of the year.
Most people don’t realize that as a freelancer, you can only make up to $30k a year before you need to register as a business and start charging your clients sales tax (aka GST/QST/HST). These taxes need to be charged to the client, then put aside by you, to then remit them on either a quarterly or yearly basis.
What this means: Again, this is a cost you need to consider when calculating your hourly rate. Income tax needs to be taken off of what you charge the client. Sales tax is an additional amount, but you do have to consider the cost of your time to register for the business, keep track of your expenses, and remit the taxes.
In Canada, we’re lucky that we have federal public healthcare. And while we can be thankful for it, we can also recognize its limitations. Specialty services like physiotherapy, psychology, osteopathy, etc as well as dentistry and vision care are not covered by our public healthcare system. Enter, private health insurance.
The vast majority of companies that have over 5+ employees usually offer healthcare benefits to their employees and often will pay anywhere from 50-100% of the monthly premium.
What this means: As a freelancer that cost now goes to you. You need to decide if you want to pay for additional health insurance or risk just paying out of pocket. That cost can add up quickly and it’s really important to consider it when pricing your hourly rate (and also before making the decision to move to freelance altogether!)
The hardest part about getting started in freelancing is being able to get clients. For most people, the intake is slow but exponential.
You get one client, then that person tells their friends and family and then maybe you get another client and then they recommend you, so you get another client and so forth.
It’s a slow trickle and you need to have a lot of patience and resilience.
This is why it’s not great to just move right from employed work to freelancing and expect to make the same amount of money.
What this means: You need to have a financial cushion for yourself knowing that the work won’t be there right away. If you don’t have a financial cushion, then you might need to consider taking another part-time job while you’re trying to build your freelancing business.
Pointing out these 4 most often forgotten parts of freelancing isn’t supposed to scare you. It’s supposed to prepare you. You can make the move to freelancing, you just need to make sure you’re doing it in a way that sets you up for success.
Are you interested in freelancing and need help? What’s your biggest hurdle in getting started?
I'm the People & Culture Manager at Journey Education. I have always had a passion for writing, organization and finding creative solutions. I aim to be personable, empathetic and compassionate and believe that kindness can go along way in both business and life.
Having worked and organized with anti-capitalist, feminist and queer organizations, I strongly believe that EVERYONE deserves, not just a living wage, but a thriving wage and that it should be the priority of every business to create an inclusive, caring and diverse work environment that doesn't just ensures the work happens, but allows people to be people while the work is happening!
My approach to everything I do reflects my training in trauma-informed practices, active listening and harm reduction as well as my interest in understand the way people work, behave and exist as their full human self. I want to create safer spaces for people to explore, create and excel in a supportive environment - whether that's in life or at work.