Below is a blog I wrote a long time ago. In it I try to explain why freelance* professionals may seem to earn more than Employed people doing similar work. I wrote it to try and make it clear (to myself and others) why we need to earn more to be on an equal footing to our PAYE chums.
‘An equal footing’. That phrase has become very important recently. It’s clear we are not seen as or treated equally at all.
The current Covid-19 crisis has had a huge effect on self-employed people and small businesses. The Government has announced support for the self-employed, but it’s not on an equal or fair footing with our employed (PAYE) friends. And currently (May 2020) there is little to no support for self-employed sole traders who run their income through a Limited Company. A PAYE person may get £2500 pcm, a director of a Ltd Company earning a similar annual wage might get around £700pcm. This is achingly unfair in so many ways. But I don’t have the mental space right now to detail why. There are plenty of petitions and blogs out there that will explain it better.
So, for now, read this blog and understand why we need higher day rates, how much more you need to earn as a freelancer in order to just break even with the benefits of being employed and why we aren’t tax dodging gits!
*For the purposes of this blog, where I say ‘Freelance’ I include freelancers, self-employed people, sole traders and sole directors of a Ltd Company or Personal Service Company.
Freelance vs Employed – who does better?
I’ve often wondered how freelance life compares to employed life in economic terms. There’s no doubt that I love being my own boss. And I don’t even mind not knowing where every next penny comes from; I enjoy the chase and I like running my business. And yes, I even get a sad sense of satisfaction out of doing the tax returns! Mmmmm, spreadsheets; I love them.
So, it’s not about asking if Freelance life better than being Employed for me. It’s more about understanding what I have to earn as a freelancer in order to be on an equal economic footing to someone in ‘normal’ employment. That’s just business management, budgeting and target setting right?
And it’s really important that I know the answer. Rates of pay for voiceover artists is a constant subject of stress/confusion/rage/conversation on any industry Forum. I don’t want to be a scab. And also, as a professional, it’s important that I know what I need to build into my rates in order to cover my business expenses.
So, let me break it down…
The perks of employment
Employees have immense safety nets. Maternity pay, sick pay, holiday pay as well as perks like employee pension contributions and an IT team to shout/cry at when the printer inevitably breaks down AGAIN! You have all your IT hardware and software provided for you, office chairs, a cleaner, heating/cooling and maybe even tea and coffee. The list goes on.
So what does that all add up to?
Holiday and sick pay
If you take away weekends, there are 261 working days.
There are 8 national holidays, 28 days of statutory holiday entitlement and an average of 5 sick days per year. That’s 41 days that an employee gets paid for even when they aren’t working. Ooof, I’m jealous.
In order to figure out how much that is worth we need a wage. So, let’s base this on what I consider to be the baseline living wage for a family; £55,000 per annum. (See below for how I’ve come to this figure.)
£55,000 divided by 261 working days is £211 per day.
41 days @ £211 is £8651.
So, the employee is already £8651 better off than the freelancer.
Pensions and expenses
New pension rules mean an employer must give a minimum of 2% of your salary as pension. So, add another £1100. Add to that roughly £2.5k in NI contributions.
Calculating the cost of running an office, buying equipment, marketing the business etc. is harder. The list of business expenses is vast. And a ‘normal’ employee has that all provided. A rough guess is that 15% of an employee’s value goes on those sorts of overheads. £55k plus 15% is £8250.
That’s a total of £20501 which is a 37% increase on the £55k annual wage, or £75,501 annual income!
But there’s more!
The challenge of a freelancer
We’ve agreed our employee is getting £211 per day regardless of holiday or illness. But as a freelancer I have to earn more on the days I am working to cover these breaks.
261 working days minus 41 days (sick and holiday) is 220 days. (£75501 / 220 = £343 per day).
But it would be impossible for me to earn 5 days a week. I run a business. That means I do the IT purchasing and maintenance, the admin, marketing, accounting, business planning and every other thing that’s required to run a successful small business AS WELL as doing the ACTUAL work of voiceover. At least 40% of an average week is spent on the ‘other’ stuff.
So 220 minus 40% is 132 days. £75501 divided by 88 days is £572.
This is why freelancer daily rates are higher than employed people.
So, in summary, as a freelancer I need to gross £75,501 (or £752 on my voicing days) in order to be equal with an employee on £55k a year. That’s roughly 37% more. (I can’t face calculating the impact of no maternity leave right now).
Why do I care what employees get?
Well, it’s all linked to the prices I charge for my voiceover services. I’m sure many new VOs and some clients are amazed when they hear I charge £250 as a basic studio fee for an hour. It’s more than many lawyers.
But I don’t earn £250 per hour. I wish I did! Let’s do the maths on that. It sounds fun.
40 hours a week @ £250 = £10,000 a week which is £520,000per year.
Mmm, now I could get used to that!!
But we all know that isn’t what’s happening so don’t get excited!
I’m not earning £250 an hour for all the remaining hours either! Even if you reduce it by 40% for the admin time you’re still looking at £208k per annum. Again, you’re dreaming (unless you’re a famous actor doing a lot of commercials and if you are, what are you doing reading this, you should really be doing something else like setting up a children’s charity with all your spare cash!)
So, the truth is £250bsf is only for some jobs (more on that here).
My work is varied. E-learning, commercials, corporate, drama, games etc. They all bring different rates of pay and take different amounts of time to complete.
But one thing is clear. I have to earn a higher amount in fewer days to be equal with an employed person.
So the next time you think a VO job sounds expensive, remember the overheads the freelance VO is having to cover. £250 bsf doesn’t sound so bad now does it?
A proper minimum wage – £55k
The average UK wage of £27k is, in my opinion, not a living wage. The Child Poverty Action Group claims low-earning parents working full-time are unable to earn enough to provide their family with a basic, no-frills lifestyle.
We have Absolute and Relative poverty. Absolute Poverty is based on 60% of the median income in 2010 (uprated to take account of inflation) and Relative Poverty is 60% of the contemporary median income. Neither are good enough for various reasons (find out why from about 15 mins in here
The Child Poverty Action Group teamed up with Loughborough University to come up with a minimum income required to participate in society and cover your needs.
For a single parent with two kids, they calculated the following:
Rent: £90 (social housing)
Food: £80
Transport: £60
Childcare: £200
Clothes: £30
All other bills: £220
Which gives a total of £680 per week or £35,500 per year. But life is more than just paying the bills. We need our kids to be able to go to the cinema, join a club, we may need a night off once in a while and a week’s holiday. So adding access to a small amount of social, recreation or cultural activity is an extra £85 per week.
That means that a person needs to take home £39,780 which equates to a salary of around £55,000 per annum! And that STILL presumes you’re living in social housing. Which I don’t.