Full-time employment vs contractor vs freelancing

What are my employment options?

When most people think of a job, they only think of full-time employment. Sadly, the other options are often labelled as not secure, not profitable or infrequent.

Many forget about other options such as contracting, freelancing or other self-employment options. 

It’s important to note that security should not be the only reason you choose full-time employment. For a seedling to grow, it needs to leave the security of the seed, and grow into fertile soil. 

I want to start by saying that I define an employee as someone working for a salary, and a contractor/freelancer as someone working per hour or per project. There are also legal differences in the way the state looks at you.

Choosing your job for a reason

Choosing to do work for someone (especially long term) is like a marriage. You choose to invest a lot of yourself (time, energy and sometimes money) in their service or product. 

But what’s in it for you?

Having a clear goal will help you position yourself to grow. If you’re planning to grow financially, you might be able to do better as a contractor. If you’re looking for stability (for you and your family), then full-time employment might be a fit. 

Once you know why you want to do something, you will be able to make better decisions.  

What are the financial implications?

For self-employed/freelancers, there are certain tax breaks. From the money that came into the business, they are able to first deduct all running costs such as training, petrol, internet and so forth. 

On the other hand, employees get taxed and then they need to build side hustles, educate themselves and create wealth and life after their deductions.

This could be a big difference depending on your tax bracket. In business circles, this is what is called working with pre-tax Rands. 

Let’s discuss the difference in a bit more detail.

Full-time employment and money

It is for this reason that full-time employees invest in retirement annuities so that they can claim back some of the tax that they’ve paid. 

But let’s first talk about salaries. 

As with investments, guaranteed money comes at a premium cost. The sense of security that is received with a job will cost you more than you think. If you’re looking for a fixed income annuity, you will need to pay the fees for the risk that the investment firm needs to carry. This essentially means that the salaries of full-time employed people are lower than their contractor and freelance counterparts. 

You will also be paying PAYE and UIF to the taxman on everything that is not explicitly excluded, such as a car allowance (for work travel only).   

Contractors, freelancers and money

Being a contractor/freelancer will give you a bit more admin, such as timesheets and/or invoices. 

For your effort and the risk of not being an employee (and the insecurity of only having for a project or fixed few months), you will be rewarded with a special extra bit of cash on top of what an employee would receive. This could differ by industry – anything from 0-100 % more than an employee. 

If you didn’t know, you’re also liable for tax as a contractor or freelancer – though you have more deductibles. As an employee, you’re not able to deduct your trips to the office (though there are exceptions!) – yet as a contractor or freelancer, you can deduct all costs that you had to incur to find the client and do your job. These tax deductions include transport for meetings, eating out bills with clients, marketing, websites, hardware (Laptops and phones) used for work, internet and mobile phone contracts. 

You will be working with pre-tax rands – and SARS will get paid from the profit only.  

What are the time implications?

Overtime and time spent on a project are heavily dependent on the industry. For example, as a full-time software developer, you will be requested to work overtime not only for emergencies but also for deployments and product owners that discovered that a label is not the colour they want. 

On the other hand, for a person working in a security call centre, the overtime will normally be paid by the hour – if required.

Full-time employment and time

In general, full-time employed staff will get a salary and be expected to assist after hours and to make deadlines that the business sets. In many instances the time will eat into your family and personal life.

Most employers also have core hours that you need to be in the office. If you need to go to the bank, take your kid for a shot or help your parents who were in an accident, you will need to use your precious annual leave. 

Annual leave is normally between 15 and 20 days, depending on your negotiation skills and company policy.

When you resign, the company normally pays out your leave days. This will also depend on the company policy and your contract.

Contractors, freelancers and time

For contractors and freelancers, the policy is normally if you don’t work, you don’t get paid.

As a freelancer, you will often get paid per project. This means that your time will be yours – and if you finish a project early or in the midnight hours, you’ll have the day to go to the gym, walk on the beach or find new clients.  

As a contractor, you might need to work employee hours. Some get paid by the hour, but it’s not unheard of to have a contract that includes no overtime pay for a term of a year. In this case, a premium is paid by the client to cover the possible time. In this case, you will be treated as an employee, but not with annual leave. 

Freelancers and some contractors get paid by the hour – and many of them in their own time. They could spend 18 hours a day for just over 2 days, and take off the rest of the week. even though they have worked the 40 hours for the week, they have a few extra days off to focus on things they love. 

The caveat here is that another contract at the end of a job is not a given. Many companies will not renew contracts after a project has been completed. Due to this risk, contractors and freelancers will often have more than one job in the pipeline. They will also be required to master other skills such as marketing and sales – and expand their knowledge into a more multidisciplinary approach. 

What else should I consider?

Risk of having a single source of income

We often forget the risks of being an employee. Anyone who has lost their job, been through retrenchment or worked out of their job will acknowledge that security is only a perception. 

I do acquiesce that freelancing and contracting are not for everyone. The risk is more real when a contract is not renewed and not everyone can work with their money well enough to plan for trying times. 

The world is also geared for full-time employed people. When you want to apply for a home loan or similar, you will be required to supply 3 months’ payslips from an employer. This causes headaches for the other people, as many loans are declined even though the person has more than enough monthly cash flow. 

It’s also worth noting that most retail specials are on weekdays when people are at work. These include massages and restaurant breakfast specials. This means that as a freelancer, you will often be able to make use of these rather than spending a premium over weekends.  

Conclusion

If you’re planning to go the employee route – it’s not all bad. You make awesome friends because everyone suffers together. And get paid (sick and annual) leave and benefits.

Financially it makes sense to be a freelancer or contractor. 

I do however realise that the choice is industry dependent and that not every opportunity fits into the strict mould.

To keep yourself moving forward, it’s vital that you treat yourself – whether employed, self-employed or freelancer – as a business. 

Relook your offering every year – upskill yourself.

 Keep your eye on your finances – make sure you don’t lose money due to inflation or other (sunken) costs.

Happy investing!