What is Self Employment ? – Which Type is Best

Updated on August 16th, 2022

Man working on computer at dawn - What is Self Employment ? - Which Type is Best

What is self employment?  It’s a valid question that many of us are asking ourselves at the moment. Many traditional salaried roles are disappearing. Furthermore, automation is taking over many of the tasks that we previously performed.

Generally speaking, self-employment is when someone works in their own business, in a profession or in a trade.  When you’re self-employed you don’t work for an employer but rather you work for yourself.  You’re responsible for all the costs but you can also make enormous profits.   Self-employment can open new doors and potentially transform your life.

Self employment has many benefits, particularly the freedom that it can bring and the potential to earn much higher levels of income.  You’re in control of your own destiny when you’re in self employment and can set your own hours.

This flexibility with your time means that you can always be there for friends and family when you need to be.

Key Things to Know in Self Employment

In self employment,  you’ll be responsible for all of the marketing and customer acquisition. On the flip side, you’ll never have to worry again about company layoffs.  Accordingly, there’s a good chance that you’ll feel more secure and satisfied with your life.

As someone who is self-employed you can set yourself up in a company structure or a sole proprietorship.  Each structure has their own particular legal and tax attributes depending upon your location.   

You’ll need to develop a basic knowledge of bookkeeping, tax, marketing and managing staff.  These skills can be attained through reading and online courses.  

In this article, I’ll go through the three main types of self-employment and let you know the advantages and pitfalls of each.

1. What is Self-Employment? – It Might be Your Own Business

Becoming your own boss in your own business has many advantages.  

If you’re running your own business, you might set up a retail shop, a repair company or a manufacturing business.  These are all traditional self employment, bricks and mortar style businesses.

retail shop with for sale signs at front

While these are often great opportunities, they usually require significant startup funds.  Additionally, if you face an economic downturn, you’ll still need to pay rent and employees even if customers stop coming.

For these reasons, online businesses are often a better option. They allow you to earn income which is location independent, passive and fully scalable.  With an online business, you need very little money to get started.

I delve into the best online businesses in the next section.

Online Business has Many Advantages

To answer this, I can say that I’ve learnt many lessons during my entrepreneurial journey.  What I’ve learnt is that it’s best to focus on those opportunities that yield the maximum results for the minimum effort.

Accordingly, I really like online businesses that become income generating machines but which require less effort.

Just like the Pareto rule, it’s best to focus on things that give you 80% of your results for 20% of your effort. I’ve never wanted to spend my life answering customer service queries.

Hence, my view is that the best opportunities in online business are in the areas of content creation.  These consist of blogging, online course creation, book creation and Youtube.  With content creation, you own the online assets that you are creating and they are less prone to be copied by others.  

Also, if you’re creating the content yourself, it’s totally free. So it can feel like you are making money out of nothing.  It can also be done from anywhere. This will give you with the location independence to travel if you want to.

There’s other ways that you can start an online business.  Some other ideas are ecommerce, selling a SAAS product or by doing freelancing work.

2. A Profession as Self Employment 

Traditionally, a profession would be thought of as an accountant, a lawyer or as a physician / doctor. 

In recent years, it’s generally felt that this definition has been loosened.  Accordingly, a profession may now include other work that involves maintaining professional standards.  Examples would be architects, bankers and actuaries.

The upside with a profession is that you’ll have community recognition and high earnings..

professional man in a suit

The drawbacks of a profession is that you often need to engage in years of university level study which can be very expensive. 

You’ll also need to maintain your professional qualification each year which takes time and money.

It can take many years of study to gain your professional qualification.  For example, to complete all training to be a doctor it can take 8 or more years.  So it’s a large investment of your time. 

3. Be Self Employed in a Trade

We’ve always thought of a trade as being the traditional roles of carpentry, plumbing, metalwork and other hand made skills.

With the advent of new technologies, the definition of a trade has now been extended to include such work as graphic design, website development or photography.

carpenter working with electric saw - What is Self Employment ? - Which Type is Best

There’s many great things about having a trade.  Depending upon your industry, your work will almost always be in demand. 

There’s often the potential to work outdoors and at your own pace.  The earnings can be quite good and if you’re successful, you can build your trade into a business employing other people. 

Enjoyment of the work can be a major factor. For example, carpenters and furniture restorers often love the work that they do. 

There’s something magic about bringing a piece of antique furniture back to life or restoring a timber cabin that money won’t buy. So remuneration mightn’t always be everything when considering the best trade. 

One drawback of self employment through a trade is that when you stop, your income stops. So, this can be difficult if you get sick.  The problem can of course be mitigated if you employ assistants or apprentices.


What is Self Employment? – Summary

We’ve defined self employment in this article as being the situation where you work for yourself instead of a traditional employer.

The type of work that you perform will be in the mode of either your own business, a profession or a trade.

There are advantages and disadvantages of each.  It will depend upon your personality type and your skills and attributes.

Having said this, running a business is preferable for a lot of people.  This is because you don’t have to pay for an expensive university education which you’re then locked into.

Also running a business has the potential to grow your wealth by a much higher multiple as you can take advantage of the benefits of scalability.

Frequently Asked Questions

Should I choose a profession or a trade for my self employment? 

If you’re more mechanically minded and good with fixing things, perhaps choose a trade.

A profession such as accounting might be more appropriate if you’re more adept at theoretical abstracts and prefer working in conceptual terms. You’ll be interested in how concepts are translated into real-world solutions.

What’s the difference between self employment and a business?

With self-employment you tend to be a sole operator. If you stop working the business stops as well.

Alternatively, with a business there is a system of procedures involving numerous employees. The beauty of the business organisation is that you as the owner, you can easily step aside and it will keep running. As long as you have the proper procedures and staff in place, the business will keep operating with little direct input from you.

Should I follow my dreams in self employment or choose the most practical business?

This depends upon your individual circumstances. Many people would say that it’s best to follow your dreams. By doing what you love you’re more likely to be engaged and interested. This will make it easier to keep going during difficult times when you aren’t seeing results.

Isn’t self-employment risky?

It’s not as risky as you might think. This is particularly true if you don’t have much in the way of start-up expenses. For example with an online business you don’t need to lease premises. And the risk of losing money tends to be low.

Should I choose a franchise in self-employment?

You’ll need to weigh the costs and benefits of buying into a franchise system. The advantages are that you have much greater brand exposure and public recognition right from the start. Also you’ll have a tried and tested set of operational procedures.

The major disadvantage of a franchise is that you’ll need to pay franchise fees. This could be fixed annual fees or a percentage of your turnover. The other factor is that you may feel constricted by the rules of the franchise system. Some of these rules can feel very onerous to franchise owners.

Main Photo by Simon Abrams on Unsplash

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