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.

recurring maid service Buffalo Grove ..

In The News:

The iconic Mary Kay pink Cadillac goes electric with the Cadillac Optiq, available only to the company's top 1% of sales force performers.

Cybercriminals abuse trusted Intel driver to gain kernel access and shut down Windows Defender, enabling undetected malware deployment since July 2025.

Using email aliases for online shopping and subscriptions can protect your privacy by preventing companies from linking your activity across websites.

New research shows AI overlap does not equal job replacement, with knowledge-based roles seeing most integration while physical jobs remain least affected.

Scammers target seniors who avoid social media by exploiting public records like obituaries and real estate filings to steal personal information and money

Recovery team in Italy use AI-enabled drones to detect missing hiker's red helmet, leading to successful recovery after months of ground searches

Google Salesforce system breach exposes business data while scammers use incident to target users with fake security calls and phishing attempts.

Google announces Pixel 10 lineup with Tensor G5 chip and Gemini Nano AI, introducing Magic Cue, Pro Res Zoom up to 100x and satellite emergency support features.

C San Diego study reveals 86% of school safety companies monitor students 24/7 on personal devices, raising privacy concerns.

Users can now add their favorite outlets' coverage to the Top Stories section of Google search results by utilizing the 'preferred sources' feature. With just a few clicks, you can add Fox News.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Interstellar object 3I/ATLAS shows an unexpected frontal glow that Harvard's Avi Loeb says cannot be explained by sunlight reflection or standard cometary outgassing.

Receiving order confirmations for purchases you never made could mean your email address is being exploited in fraud operations targeting multiple retailers.

First wireless brain implant works with Apple's official protocol, enabling hands-free control of iPhones, iPads and Vision Pro through thought alone.

Data brokers sell personal details that scammers use to target retirement funds through fake financial advisor calls and convincing phishing attempts

Ten innovative tech solutions from gait sensors to smart pill dispensers help adults 65+ track fall risks and prevent injuries before they happen.

Meta AI internal documents revealed chatbots were allowed to flirt with children and engage in romantic conversations until the company was exposed by Reuters.

ChatGPT will avoid giving direct mental health advice under new OpenAI rules following instances where the AI model provided harmful or misleading responses.

Your phone tracks you in more ways than that little GPS icon suggests. Here’s how to find and clear hidden location logs on iPhone and Android.

Authorities in France and the Netherlands have been notified. Meanwhile, impacted customers are being told to stay alert.

Apple just rolled out a redesigned Blood Oxygen feature to specific models, following a recent victory in a legal dispute.

Kidney dialysis provider DaVita experienced a ransomware breach by the Interlock gang affecting 916,000 people in the second-largest U.S. healthcare attack of 2025.

A Chinese-made Unitree R1 robot walked Manhattan streets and shopped for shoes as part of KraneShares' $28 million AI robotics fund promotion campaign.

The ShinyHunters cybercriminal group breached Google's Salesforce system through vishing attacks, stealing business contact details and customer data.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

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

Small Business