Add Freelancing to Your Career Management Arsenal

Takeaways

If you only have a minute, here are the takeaways:

• Remote work is here to stay. With your next role is unbound by geography and time zone, the job marketplace is functionally limitless. This changes how you manage your career. 
• Transactional relationships between employee and employer, e.g. “tours of duty” will become more common, and the quality of “gig-work” will continue to improve.
• This future isn’t some panacea. Like everything else, there are tradeoffs. For example, more autonomy but less security.
• If you’re curious, an easy way to sample a “tour of duty” is switching from an employee to a freelancer within the company. 
• This can be great for your career if you see yourself as CEO someday, or you’ve worked at the same company for a long time. If your current priority is work/life balance, however, then stick with your employer until you’re ready to focus on your career.
• As a freelancer, your hourly rate will likely go up, but you’ll likely owe more in taxes and they’ll get more complicated. You’ll also have less job security with each client.
• If you’re a freelancer in the US, expect health insurance to get much more expensive. If you become a resident abroad, chances are you’ll be entitled to some public health services covered by the government.

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Remote work is here for good.¹  This changes how we manage our careers.

When your next role is unbound from geography and time zone, the marketplace is functionally limitless. This accelerates the changing employer <> employee relationship, away from one based on stability and loyalty, towards a transactional exchange.

In other words, less monogamy, more swiping.

Reid Hoffman called this transactional relationship a “tour of duty”, a temporary alliance of value exchange, before moving on to new opportunities.² Naval Ravikant offered a slightly updated take on the tour of duty concept:

“In the future, whether it’s 50 or 100 years from now, virtually everyone will be working for themselves. The information revolution, by making it easier to communicate, connect, and cooperate, is allowing us to go back to working for ourselves.

“Right now, this exists in the form of the ‘gig economy’ via apps like Uber, Lyft, and TaskRabbit. But in a few more years, you’ll start to see a higher quality of work in a gig fashion.”³

This future of work isn’t the panacea 20-something, newly minted digital nomads proclaim it to be. There are tradeoffs. Like everything in life. You get a limitless job marketplace and increased autonomy over your time. In exchange, you sacrifice job security, workplace culture, and deeper relationships with colleagues.

For you, this may or may not be worth it.

Fortunately, if you’re working for a company today but curious about this path, you can easily sample it: switch from a company employee to a company freelancer (e.g. vendor, consultant, contractor, 1099). If you’re hooked after a taste, you can double-down and bring on more clients. If you hate it, it won’t take much to reverse the designation or find a new company.

There are three major vectors to consider when making this decision: career, finances & taxes, and health insurance. Let’s walk through the tradeoffs.⁴

Career

When you consider the career impact of being an employee vs a freelancer, take stock of your (1) goals and (2) priorities.

Ravi Mehta asks my favorite question that cuts to the heart of your goals: Where do you see yourself in 10 years? More specifically: are you the CEO of your own business? Or are you climbing the ladder at a larger organization? 

If CEO, you might as well start now. You can start building your book of business with a client in hand (your current employer).

Even if you don’t see yourself as a CEO in the long run, there are benefits to freelancing if you’ve already been with a company for a few years. You’re likely seeing diminishing returns from the company the longer you stay (unless the company is very thoughtful about internal career development). You may be more valuable to prospects after getting other looks and experiences from new businesses.

Tip: if you go this route and plan to travel abroad, consider keeping a permanent address in the states. Some companies can only hire US-based employees AND freelancers for tax/HR reasons.

The second question to consider: Where does your career fall in your priorities? Are you motivated by more impact, more money, and more recognition? If so, making a large bet on yourself is a good one.

On the other hand, if your priority is family or work/life balance, stick with being an employee. Focus on what you know and leverage your institutional knowledge. Don’t say “family is the priority,” then stress out about setting up your LLC or finding new clients.

Finances & Taxes

One clear advantage of switching to freelancing: you make more money.

Freelance wages should be higher than employee wages since benefits are part of an employee’s total comp. As a freelancer, you can negotiate that into your hourly rate. Also, if you’re an employee but working 60 hours, you’re paid for 40 hours. Switch to freelance, and you get paid because you’re paid for the whole 60. (Many thanks to Jenna Randolf for pointing this out.)

There are some disadvantages. First, you’ll likely owe more in taxes. While you can claim expenses against your business income, it’ll still feel like you’re paying more (since you’ll have to cover both personal and business taxes). Also, if you choose the nomad life and work abroad, your taxes will get more complicated.

For example, if you’re a US citizen, you’ll owe US taxes on your global income, regardless of where you live. Then you’ll have to account for your taxes in your country(s) of residence, too. This varies wildly. In Ireland, my income is taxable from the date of my arrival. Meanwhile, if you are a tax resident in Dubai, there is no income tax on residents or ex-pats.⁵

Second, should the company run into lean times, freelancers and contractors are the first ones to get let go. So you’re taking on additional risk if that’s your one major source of income — keep that in mind if your financial house isn’t in order.

Third, if you want to increase your pay or you do lose that employer/client, you’re in “eat-what-you-kill” mode. It’s up to you to attract new business before you can bring in new revenue.

Health Insurance

If you switch to freelance, are living in the US, and have to pay for health insurance, it’s going to get more expensive. Anecdotal evidence: Alexis Grant enrolled her family of 4 in West Virginia through the marketplace and pays $1,899.73/month.

The costs seem uniquely an American problem, where health insurance is tied to employment. In most other countries, if you’re a resident you’re entitled to a range of public health services, covered by the government. So from a health insurance perspective, there’s an advantage to living abroad if you make the switch to freelancing.

Our work dramatically changed these past few years. We should expect the changes to continue. As it does, how we manage our careers needs to change, too. Sampling working as a freelancer within your existing company is one low-risk strategy to do it.

Many thanks to Pramit Rashinkar for being a sounding board for this piece.

Sources:

1. https://buildremote.co/companies/companies-going-remote-permanently/
2. The Alliance: Managing Talent in the Networked Age
3. Joe Rogan Experience #1309, h/t Peter Nguyen for episode recommendation
4. Not a tax professional. Nor a doctor. Consult professionals.
5. Expatra