In pre-pandemic times, freelancing was very common, but most people worked traditional jobs. However, the rise of freelancing and remote work as we transition into a post-pandemic era has been accelerated not out of exploration, but out of desperation. From 2014 to 2020, the U.S. saw an increase of 6 million people transition into freelance work.
With unemployment so high at one point during Covid, many people not only needed financial security, but they also needed the flexibility, personal agency, and freedom that freelancing offered them. Now that the world is re-opening, many people aren’t willing to give those things up. In 2017, Statista published a report predicting 79.6 million people to be freelancing by 2025. Though this report misses the 2020 mark by nearly 4.8 million, the fact remains that freelance work is predicted to follow a steady increase. Freelancing and remote work used to be the future of work, but with 2025 right around the corner, it is clear that the future of work is now.
Why is Remote Freelancing Work Becoming So Popular?
Upwork statistics show that the freelance economy is growing at a rate 3 times faster than the total US working population for many reasons all pointing back to personal and financial independence.
With the rapid pace of technological change and the reported success of remote work, every generation is choosing freelance careers, but do you know which generation is leading the pack?
You’ve guessed it. Generation Z, with Millennials right behind them.
Did you know that 41% of postgraduates are freelancing? Covid-19 presented one of the most difficult job markets for recent graduates looking for employment. Therefore, many young adults turned to freelancing for financial security and economic opportunity. Not only is freelance work giving recent graduates the opportunity to earn an income, it is also giving them an opportunity to hone in on skills. CNBC reported that over a 6-month period, 59% of freelancers had participated in skills training vs 39% of non-freelance workers.
Millennials and Generation X are jumping on board the remote freelancing trend due to similar reasons of job insecurity, but that is not the end of their long list of adult problems. Millennials and Generation X are also at the age where they are taking care of their parents, supporting their kids, battling the rising cost of living, and having to consider the time it takes them to commute to work. Remote freelancing has become the answer to their problems and it provides:
- A high level of flexibility
- The ability to be your own boss
- The ability to work from anywhere
- The ability to pursue passions
- And ultimately the ability to spend more time with family
Financial Freelance Opportunity in the US
It is clear that freelancing is a growing phenomenon in the United States, but it is something that has been accelerated around the world for years. Currently there are 1.1 billion freelancers in the world, with the United States only making up around 5.3%.
Surprisingly, though the US only makes up around 5.3% of the 1.1 billion freelancers, it has the largest opportunity for financial freedom, with the United Kingdom right behind it. To add to that, an Upwork study revealed that freelancers contributed 1.2 trillion dollars to the US economy in 2020. With the United States pushing a laissez-faire capitalistic system, freelancers have better ability to run their show now that it has become a large part of the economy.
Not only has freelancing minimized the mental effects of the pandemic, but it has also minimized the financial impact of it. Many say that when they made the switch to freelancing, they were able to increase their earning potential (Upwork).
With more and more evidence that freelancing is financially supportive from the top down, there are still complexities that arise when people contemplate whether they should switch from traditional employment to freelance careers.
Challenges Don’t Mean Impossible
Freelance work is unstable.
Freelance work makes taxes too complicated.
You have to find your own insurance.
You may have to chase after your money from slow-paying clients.
Whew. Okay, Now that we’ve gotten that out of the way, I am going to tell you that while these concerns are incredibly valid and worth being aware of, they are not reasons to give up on the idea of freelancing. When weighing the pros and cons of freelancing, it all depends on what you think is suitable for your life style. There are cons to everything you do in life, but some the cons associated with freelance work have solutions that could ultimately make the negatives seem like minute issues. Let’s break it down a little bit.
Freelance work is unstable
According to CNBC, a key trend emerging from the shifting workforce is that organizations are facing a talent shortage.
- 58% of hiring managers feel “stretched to capacity”
- 61% of teams “lack people or skills to complete their work”
The answer to this: hiring freelance workers.
Now that the US has some breathing room since the pandemic first began, companies NEED more talent so much so that they are willing to hire freelance workers. Not only does hiring freelance workers allow a company to do more work without having to increase its fixed cost, but it also accelerates the speed at which a company has its deliverables. Companies don’t have to worry about not knowing the right person at the right time, especially with the growing use of digital platforms.
Another thing to consider is the fact that nearly half of freelancers find work through their past clients. If you have been contracted to do remote freelance work and you do a really good job, then that client will keep coming back. To make things even better, they will likely refer you to other people.
A Harvard Business School report states that 60% of business leaders say they expect to be sharing talent with other companies as the workforce continues to shift. On top of that, the article also mentions that 3 out 5 of business leaders also believe that their core workforce is going to be smaller in the future. That means they will likely have a heavier reliance on freelance and remote work.
I can’t guarantee you that freelance work won’t be unstable at times, but the fact remains that there is an increasing need for it. Instead of remote and freelance work being unstable, it has become stability in disguise. If you are someone who is good at establishing work relationships and marketing yourself, instability in freelance will likely be the least of your problems.
Freelance Work Makes Taxes Too Complicated
The Internal Revenue Services (IRS) considers freelancers to be self-employed. Therefore, if you are a freelancer, you technically have to file your taxes as a business owner. That does opens doors for tax deductions, but it could also uncover a few complexities.
As an employee, your company typically takes income, Social Security, and Medicare taxes out of your paycheck for you. As a freelancer, you are responsible for not only paying your own income tax, but you are also responsible for paying a self-employment tax. The self-employment tax, which is around 15.3%, represents Social Security and Medicare taxes. Often the self-employment tax comes as a surprise to newbie freelancers, but now that you know… you’re welcome 😉.
Estimated Tax Payments
As mentioned before, when you work for a company, that employer withholds taxes from your paycheck for you because the IRS wants their money as soon as it is made. Because you can’t withhold your own taxes and pay the IRS every time you get money from a freelance contract, you are obligated to pay the IRS quarterly. You’ll have to estimate your tax liability, and pay what you think you may owe the IRS at the end of tax season. If you wait until the tax filing deadline, you could incur penalties and interest.
This is an area of concern for many freelancers and it could get messy if you aren’t budgeting your freelance income, paying attention to quarterly dates, or keeping track of your business expenses. Your best bet to ensure you don’t get hit with a myriad of fines and penalties is to do your research (Google is free), and/or consult with someone who is tax-savvy.
RELATED ARTICLE: How to Budget for Taxes As A Freelancer
Tax return time is tedious for people who are freelancers. So much number crunching and form sorting goes into creating an accurate tax return that it is wise to just use advanced tax software or human tax preparers. That way you don’t have to deal with the stress of putting everything together yourself, and depending on how you run your freelance empire, it may be tax deductible. Here are a few that have a free version as well as a paid version.
Of all the “complications” that comes with paying taxes as a freelancer, most of them can be solved just by being organized and consulting people or tax software for help with filing and returns (which could potentially be a tax deduction).
In addition to potential help with taxes, a huge benefit that many freelancers don’t take advantage of is the tax deductions. Knowing where you can save money during tax time can help you retain more of your earnings, but you have to be aware of all the deductions you may qualify for as a freelancer. This Investopedia article outlines 15 common tax deductions and benefits for the self-employed. Ensure that you go through your tax return carefully and keep track of all of your earnings, spending, investing and donating.
You Have to Find Your Own Insurance
One of the biggest hold ups people have when it comes to becoming their own boss and starting their freelance career is the concern of health insurance. In America, health insurance is usually employer-sponsored. If you’re rolling in dough, you may have a supplemental private insurance policy. So the fear of obtaining health insurance on your own is a valid concern, but it is not a reason to shy away from a freelance career.
For one, many people who are newly self-employed, whether that be through freelance work or starting a small business, are invited to join the National Association for the Self Employed. Membership into this organization can help you not only scope out health insurance plans without having to go through private insurance agent, but it also gives you access to discounted health insurance plans and Health Savings Accounts(HSA).
In short, an HSA is tax-advantaged savings account linked to a high-deductible health plan (HDHP). Having an HSA account allows you to contribute to an HDHP. An HDHP allows you pay less money per month, but if have to go to the doctor for anything, you’ll have to be able to pay the deductible. As a freelancer, an HDHP might be for you if you are:
- Healthy and rarely ever get sick or injured
- Can afford to pay your deductible upfront or within 30 days of getting the bill (you can use money from your HSA)
- You can make significant contributions to an HSA each month
- You want to use an HSA as a way to save and invest money
Other things to consider as a freelancer is that finding ways to get health insurance doesn’t always have to be as complicated as consulting with an independent insurance agent, joining an organization, or getting an HSA. There are other ways to make sure you’re covered such as:
- If you are 25 or under, you may be able to stay on your parent’s health insurance plan.
- If you are married or in a domestic partnership with someone who has a employer-sponsored health insurance, you can likely hop on their plan.
- If you are over 65, you may qualify for Medicare.
- If you are a enrolled in college or a degree program, you should have access to your university’s insurance plan.
RELATED ARTICLE: Stop Using Health Insurance as an Excuse Not to Freelance
You Have To Become A Debt-Collector
I think every experienced freelancer has had this happen to them at some point in their freelance career. They spent a lot of time creating a project for a client, and the client just disappears. That is arguably one of the most annoying things you’ll face as a freelancer. You likely don’t want to have to go through a debt collection agency to claim your money, so here are some simpler ways to reduce the likely-hood of being ghosted.
- Meet the client face to face
By face to face, I don’t mean you have to take every client to lunch or dinner. 86% of freelancers work from home and 25% of freelance workers are remote workers. So taking clients on a very expensive outing may not always be the answer.
Video, on the other hand, is the largest communication platform right now. It gives you a chance to see your client’s face and converse with them. You can use platforms such as Introview, Zoom, or Google Meet to get a feel for your client before taking on a project.
By doing this, you create a layer of transparency, enhance your brand, and make the client feel they can trust you. Most importantly you get a chance to evaluate your client.
2. Upfront payments
No one wants to spend hours working on something that will never be used. The best way to ensure you aren’t wasting time and resources is to have your client pay something up front. This keeps the client engaged and less likely to flake because they have had to make an investment in something.
Industries for Freelancers
Though many of these “cons of freelancing” have been used for a long time to discourage people from pursuing a career in freelancing, the tides are shifting. There are reasonable solutions to these problems, and remote freelancers and companies are ready to take the risk.
Freelance and remote work used to be mostly for generalized jobs, but the landscape has increasingly began including specialized work. The phenomenon of companies turning to freelancers to satisfy their need for immediate, cost-effective, and project-based needs has blown some industries wide open.
According to the U.S. Bureau of Labor Statistics (BLS), the outlook for accountants is expected to grow 4% throughout the next 8 years. BLS also mentions that this sector is closely tied to the health of the economy. Because of the projected steady growth and the financial challenges of Covid-19, the accounting and finance industry is a hot spot for the freelance economy right now.
15 years ago, if you went to therapy, people thought something seriously was wrong with you. Currently, therapy has been destigmatized and is even often encouraged. With the impact of Covid-19, many people have turned to therapy to help them cope. The surprising thing is that much of the therapy people have sought over the pandemic has been virtual therapy.
3. Tech Industry
As of 2020, the tech industry market was worth around $1.6 trillion. This is expected to grow to $5 trillion by the end of 2021. Not only will the industry be worth more money, but different sectors in the tech industry are also spending more money. The adoption of artificial intelligence, heightened cyber security, and big data has made the tech industry a good spot for freelancers who are well equip with:
- Programming and software development
- Web Design
- Data analysis and management
- SEO specialists
- Digital Marketing
The Future of Work Is Now
Let’s face it, freelance and remote work is not going anywhere. It is going to continue to expand and become a major part of the U.S. economy as technological innovation grows and the economy reshapes itself. Though there are some hold-ups that make freelancing a scary landscape, there are also solutions. Many companies are ready to take the leap to hire freelance workers, so why not take the leap to become a freelancer?
Check out some freelance jobs on JobSearcher today to get started.