How to Provide Yourself with Benefits as a Freelancer

Freelancers know just how good it feels to call the shots. You decide where you work, when, and who you work with. Not a bad deal right? One of the only big downsides is the fact that you’re in charge of figuring out how to get benefits as an independent contractor. Long gone are the days of an HR department that will take care of all that for you. As intimidating as providing yourself with benefits feels, it isn’t as unattainable as it sounds. 

Let’s take a closer look at how you can create your own benefits package. 

Understand How to Charge for Benefits as a Freelancer

When you work for yourself, providing yourself with benefits literally comes at a cost. To determine what that cost is, you’ll need to factor in:

• Health insurance
• Retirement contributions
• Vacation days
• Sick days

When you’re a full-time employee, typically benefits are a part of your overall compensation package. If your annual salary is $80,000, you may have an overall compensation package that’s worth well over six figures because of health insurance coverage, retirement contributions, and other benefits offered by your employer.  

If you work for yourself, you need to charge enough so you can afford to get benefits as an independent contractor. Employers can’t hire employees and pay for their benefits and salaries unless they charge the right amounts for their products and services, and neither can you. 

When deciding what your rate should be, don’t just think about what you want your salary to be. This can be a strange adjustment if you’re transitioning out of full-time work, but it’s important you don't just charge clients what your hourly rate would be as a full-time employee. Make sure you're charging enough to pay for benefits, including what it would take to make up for a lack of employer 401(k) contribution matches and paid time off. 

Sit down and crunch the numbers on how much you need to set aside on an annual basis to cover your benefits (health, vision, dental, paid time off, and the equivalent of an employer 401(k) contribution match). Then divide that number by 12 to figure out what you need to pay in total each month. Once you know what you need to make to cover your benefits each month, you can figure out how much you need to charge to cover those expenses as well as your living expenses. 

If you have dependents, you’ll need to increase how much you’re charging if you have to pay for their healthcare benefits. If you’re married and your spouse has an employer-sponsored healthcare plan, you and any shared dependents (such as children) may be able to join their plan instead, which will hopefully save you some money on benefits. 

Create a monthly budget for benefits

While you probably already have added room to your budget for fixed benefits costs like healthcare premiums and retirement savings contributions, you also need to add vacation and sick days into your monthly budget. How can you do that? Even if you don’t plan to take time off each month, you should set some money aside to pay for future days off. For example, putting $500 a month into a savings account can help cover the income lost if you take two weeks off every December and July, as well as a few sick days throughout the year. 

You want to be able to take time off without having to worry about how you’ll pay your bills, so get ahead of the issue and set aside some funds to cover planned or unplanned days off. 

The different retirement savings options available to freelancers

You won’t have access to a traditional 401(k) with an employer contribution match when you’re an independent contractor, but that’s okay. There are plenty of great retirement savings account options available to freelancers, such as:

SEP IRA

Anyone who is self-employed can open a SEP IRA, as long as they are 21 years or older and have worked for themselves for at least three of the last five years and earned a minimum of $600 each year. Because you’re your own boss, you’ll be the only one contributing to your SEP IRA and your contributions can’t exceed the lesser of either 25% of your compensation or $61,000 (as of 2022).

Solo 401(k)

Those who are self-employed can also qualify for a solo 401(k), which works similarly to a traditional 401(k) and allows you to deduct pre-tax contributions from your taxable income. You can contribute as much as $20,500 if you’re 49 or younger and can contribute up to $27,000 if you’re 50 or older (as of 2022). 

SIMPLE IRA

With a SIMPLE IRA, you can contribute up to 10% of your compensation as long as you don’t exceed $14,000 if you’re 49 or younger or $17,000 if you’re 50 or older (as of 2022). When you contribute to a SIMPLE IRA, your investments can grow tax deferred until the day you make a withdrawal. 

How to Shop for Healthcare 

Figuring out how to secure healthcare is a major concern for a lot of full-time employees that want to make the leap into freelancers. You have a few options for securing healthcare coverage. You can shop privately through individual insurance companies, you can shop publicly through your state’s marketplace, or you can use a benefits solution provider like Catch to simplify the process. 

Right Side Up is now partnering with Catch to help make it easier for our consultants to gain access to the healthcare coverage they need. Catch offers the same exact plans as the state public marketplaces, but helps you navigate the process of finding the right coverage. Catch helps you find savings on premiums where possible and also offers support from licensed insurance agents if you have any questions when researching and choosing a plan. You can also organize your tax savings, payments, and retirement savings in one place alongside your healthcare coverage, when you use Catch—making it easier than ever to get benefits as a freelancer.

And what freelancer doesn’t want to be more organized?

To learn more about becoming a freelance growth marketer for Right Side Up, send us a message at talent@rightsideup.co.