Home
>
Small Business
>
Self-Employment: Do you know the Difference between Rates and Wages

Self-Employment: Do you know the Difference between Rates and Wages

The difference between rates and wages is not always clear to newly self-employed people and their wage-earning clients.

Both look similar on the surface; both are expressed in dollars and cents per hour. But they each represent something very different.

Wages are the payment a worker receives for his labor.

Rates are the payment a business receives for performing a serivce to a client. In addition to the labor used in performing that service, rates must cover the business's overhead.

Because of that, rates have to be higher than hourly wages earned by employees for comparable work.

Most newly self-employed workers are former employees. They are accustomed to receiving pay based on wages. Because they don't understand the difference between rates and wages, when they start out, they tend to set their rates too low.

To survive, your rates must be high enough to pay the bills and enable you to earn a living.

Some of the differences between a self-employed person's rates and an employee's wages are explained below.

WAGES

? If you are a wage earner, you are due an hourly wage just by being present and willing to work at a set time, for the period of time demanded by your employer.

Your wage is the payment for your labor.

? The employer supplies the necessary equipment and supplies for you to do the work. And, the employer supplies your workplace.

? You enjoy all of the legal and social protections due to employees such as Unemployment Insurance, and employer paid Worker's Compensation Insurance.

? Most full-time employees enjoy fringe benefits. These range from paid vacation and sick days, subsidized health insurance, retirement benefits, etc. to stock options and more to higher ranking employees at larger companies.

RATES

? As a self-employed service provider, you receive income based on your billable hours, that is, time spent on performing services for your clients.

? You furnishes your own supplies. Unless the service is one that is performed off- site, you supply your own workspace.

? You have to equip yourself to be in business and provide your services: You must procure and equip your workplace, invest in skill and product development, market your services, purchase business insurance, and handle billing, recordkeeping and collections.

? As a business owner you take on a great deal of risk. It is reasonable, and expected, that your rates should allow for a reasonable profit over and above your expenses and salary.

The above is true for any business. Below are additional costs you pay because you are self-employed.

? Unlike most of your employed counterparts, there is no employer subsidy for your health insurance. And, as an individual, your costs will be higher than they would be as part of a larger organization.

? Aside from Social Security, you are totally responsible for your own retirement nest egg.

? You will pay both the employee's and the employer's share of the FICA tax burden (15.3%); double the burden that falls upon your employee counterparts. The IRS allows limited deductions for this tax, but your net share is still far higher than for your employed counterparts.

But you can only bill for services rendered.

The upshot is that as a self-employed service provider you must cover many expenses that employees do not. Therefore you should have no qualms about charging an adequate rate to cover your expenses and make a living.

Ellen Zucker's site, http://www.selfemployment101.com, has articles and resources to help the creative sole-proprietor earn a living and create a life.

Have Ellen's articles directly sent to your inbox. Subscribe to http://www.selfemployment101.com.

bathroom cleaning service Northbrook ..

In The News:

Learn how to act against cybercriminals in 2026 with essential security steps like two-factor authentication, software updates and credit freezing.

Choose between OpenAI releasing Sora text-to-video model, the AI race heating up, or Waymo driverless cars launching in cities across the country

Learn how to set up Google Maps and Apple Maps on your phone to automatically remember where you parked. Step-by-step instructions for enabling location services and parking detection.

Phishing scammers use rnicrosoft.com domain to impersonate Microsoft by replacing "m" with "rn" in typosquatting attacks that steal login credentials.

OpenAI announces new teen safety rules for ChatGPT users under 18, blocking romantic roleplay and requiring extra caution on body image topics.

A 2025 data breach at fintech company 700Credit exposes personal information of more than 5.8 million people through compromised third-party integration partner.

Retailers lose $76.5 billion annually to return fraud as nearly 10% of U.S. retail returns involve fraudulent activity, with $850 billion in returns expected in 2025.

ShinyHunters claims responsibility for stealing 94GB of Pornhub user data affecting over 200 million records and demands Bitcoin ransom.

ChatGPT 2025 now connects to Apple Music, Canva, Expedia, TripAdvisor and OpenTable through built-in apps that help users create playlists, design graphics and more.

Apple releases emergency patches for two zero-day vulnerabilities actively exploited in attacks. iPhone and iPad users urged to update immediately.

DoorDash launches Zesty, an AI-powered social app that recommends restaurants through conversational search, now testing in San Francisco and New York.

Cybersecurity firm Infoblox reveals that over 90 percent of parked domains now redirect visitors to scams and malware, making simple typos extremely dangerous.

The Fox News AI Newsletter covers the latest artificial intelligence technology advancements, including the challenges and opportunities AI presents now and for the future.

GPT-5.2 is now live for all ChatGPT users with improved coding, writing and image interpretation, with Kurt Knutsson offering his review.

New iPhone replacement scam uses pressure tactics and fake carrier calls to steal devices from buyers. Criminals claim shipping errors and demand urgent returns.

Amazon Ring's new facial recognition feature sparks privacy controversy as Electronic Frontier Foundation critics argue the AI upgrade expands surveillance risks.

New Android banking trojan Sturnus steals credentials, reads encrypted messages and controls devices.

Denmark's 3D-printed student village proves automation builds 36 apartments faster than traditional methods. Skovsporet project shows housing future.

Discover Android's new Sound Notifications feature that alerts you to smoke alarms, doorbells, and baby cries even when wearing headphones.

New SantaStealer malware reportedly threatens holiday shoppers with password theft. This Christmas-themed info-stealer targets browsers and crypto wallets.

The Christmas season brings a surge in Netflix phishing scams targeting shoppers with fake emails. Stacey P received convincing scam but verified account first.

San Francisco Giants invite Jamie Grohsong to throw ceremonial first pitch at Oracle Park after he learned to play baseball with a bionic hand following an injury.

FBI warns cybercriminals are stealing family photos from social media to create fake proof of life images in virtual kidnapping scams targeting victims.

Instagram's new 'Your Algorithm' tool lets you control your Reels feed in real time. The app now gives you power to customize what videos you see.

Major Marquis fintech breach exposes 400,000-plus Americans' data through unpatched SonicWall vulnerability, with Texas hardest hit at 354,000 affected.

Self-Employment: Do you know the Difference between Rates and Wages

Small Business