One of the downsides of being self-employed has always been the lack of traditional benefits. As the number of self-employed people in the UK grows 4.5 million in 2015, up from 3.8 million in 2008) so does the pool of people who are vulnerable to unexpected changes in their circumstances.
FreeAgent recently carried out a survey of over 500 UK micro-business owners and found that a staggering 82% of micro-business owners have worked through an illness because they felt they couldn’t afford to take time off.
To reduce the danger of cash worries when you are under the weather, Emily Coltman FCA, chief accountant to FreeAgent – which makes cloud accounting software for freelancers, micro-businesses and their accountants – shares some practical advice to help protect yourself.
Everyone has some downtime eventually, so it’s important that the rate you charge contains a decent buffer. You can set aside this extra money as your own personal insurance policy, whether it be for illness, maternity/paternity cover or even just downtime between jobs.
The Association of Independent Professionals and the Self-Employed (IPSE) recommends that you take the salary that you would earn as an employee in a similar role and add a third, which accounts for the added costs that being a freelancer can entail.
So, if you earned £30,000 as an employee in a similar role, then adding on a third of this takes you up to £40,000. You can then divide £40,000 by the number of days you would expect to work in a year. This should give you an idea of a ideal minimum day rate.
There’s more information on calculating a rate that covers you for the unexpected in Business basics: how to price your freelance work.
Insurance products like an income protection policy could offer you some cover, which would ensure you continue to receive a regular income until you’re able to return to work. How much you pay into the scheme each month will depend on the policy and your circumstances. Usually income protection insurance covers a wide range of illnesses and situations and has the potential to pay out for many years.
With income protection insurance, everything depends on getting the right policy for you and your specific circumstances – so it’s worth seeing an independent financial adviser or broker for advice.
In the Netherlands there is something called ‘Broodfonds’ (which means ‘bread funds’), a system where between 20-50 self-employed people group together and pay into a mutual sickness fund. If one of them can’t work due to illness, then the fund will pay out to support them.
Bread funds are ‘affordable, small, transparent and inclusive’. Participants choose their donation level and put aside each month the amount corresponding to that income. The conditions are the same for each participant; people who are older, or who have a medical history or a ‘risky’ occupation pay no higher monthly contribution. Participants can leave at any time and take their contribution with them.
There’s no formal equivalent of Broodfonds yet in the UK, although a pilot of UK Bread Funds is currently being tested.