One of the big differences between being an employee and an independent contractor is managing your own benefits. As an independent, there’s no employer to provide you with benefit options like health insurance, retirement or vacation time. Your financial future is up to you.
While it can initially be a daunting task to figure out what benefits are available to independents and which ones you need, there are many options available. With a little planning and research, you can set you and your business up for success. Below, we explore five common benefits and options for independent contractors.
As an independent contractor, there are a few different health insurance options available to you. Sometimes the simplest option is obtaining insurance through your partner or domestic partner’s plan, if that is available to you.
How to think about health insurance as an independent professional
If you are just starting out as an independent and leaving your full-time employer, COBRA can be a good temporary plan. COBRA allows individuals to continue to receive health benefits from a former employer for up to 18 months after leaving their job, and can be a good transitional solution. If your business is more established and you have another partner or employee, take a look at small business group insurance plans. While these plans vary depending on the state you live in, they can be a helpful option to compare to.
You can also look into individual health insurance coverage. These plans tend to be very customizable, giving you the flexibility to pick and choose from a range of deductibles, copays and prescription coverages. Another resource to consider is joining a group or association that provides health insurance options. You can often find more competitive rates through a group plan.
Aside from health insurance, retirement is likely at the top of your list when thinking about your financial future. There are many options available to independents, and some great tax benefits as well.
How to plan for retirement as a solo-business owner
If you’re able to contribute 25% or less of your income to retirement savings, take a look at a Simple IRA or an SEP IRA. A Simple IRA is easy to create and maintain, has minimal fees, tax-deductible contributions, and tax-deferred growth. It is a good option for independents with a moderate income or for those who have additional employees. An SEP IRA has similar benefits and is something to consider if you are looking for a plan that allows flexible annual contributions.
If you are able to contribute more than 25% of your income to retirement savings, consider a Solo 401(k) or a Defined Benefit Plan. A Solo 401(k) has high contribution limits, customizable employee contributions, and tax-deferred growth. With a Solo 401(k) you can contribute both as an employee and an employer, allowing you to set aside a large sum if you are able to do so. A Defined Benefit Plan has even higher contribution limits along with financial risk mitigation. These plans are a bit more complicated to set up, but can be a good option for those looking to contribute a significant amount to retirement.
One of the many benefits of life as an independent professional is greater work-life flexibility. However, once you are knee deep working on projects, it can be hard to let yourself take a break. Taking vacation time is completely up to you, but is more likely to happen with some planning and forethought.
How to take a vacation as an independent contractor
In the weeks leading to the time you want to take off, factor in some extra hours to wrap up open projects or deliverables. Let clients know that you’ll be on vacation well in advance and work with them to set up a plan for communication while you’re away. Having a conversation to set expectations will be a big help to clients and make you feel at ease too.
It’s also important to set some ground rules for yourself. Once you’re on vacation, be on vacation. Constantly checking email or replying to something that can wait a few days will defeat the purpose of checking out of work to relax or spend time with friends and family. If an idea or response won’t get out of your head, write it down and know that it will be there when you return.
Parental leave might not be something you consider at first, but if you or your partner are planning on having children, it is something to keep in mind. Taking parental leave as an independent is entirely possible, but will require deeper planning on your part.
How to take time off as a new parent and an independent professional
When planning parental leave, start by considering how much time you want to take off. Set a budget for that time and then brainstorm ways to boost your income to fill that gap. Take a look at your existing budget and projects—perhaps you take on additional work, bring in another independent to help out, raise your rates, or cut back on certain expenses.
Next, review your current projects and see what you can complete. If your parental leave falls in the middle of a project, consider whether or not you can pause work. Bringing in another independent or engaging a virtual assistant can be a helpful solution to respond to emails or wrap up small projects.
Lastly, talk to your clients. Walk them through your thought process, discuss how your leave will affect timelines, and form a plan for communication. They may have questions that come up when you are out, or you may be willing to do a small amount of work during your leave. Each plan will vary depending on your and your client’s needs, so form your plan accordingly, set realistic goals, and be willing to be flexible.
Business insurance may not be the first thing that comes to mind when thinking about the benefits you’ll need for your solo business, but it is certainly an important one. Most clients will require some level of insurance and to protect your business from a legal standpoint, it is generally in your best interest to be insured.
What types of business insurance do independent contractors need to consider?
The most common coverages you’ll see are general liability and professional liability, also known as errors and omissions. General liability insurance covers bodily injury and property damage. Professional liability covers economic or financial losses due to professional error. It can be used to help defend yourself in the case of a lawsuit. After determining the type of insurance you need, talk to a professional to learn more about coverage options, potential risks, and policy benefits.
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.