Self-employed part-time – what do I need to know?

Part-time self-em­ploy­ment is a popular option, and for good reason. En­ter­pris­es which begin as part-time before becoming full-time tend to last longer. If you want to set up your own business on a part-time basis, there is a lot that needs to be taken into con­sid­er­a­tion.

You have a good idea for your own business, but you don’t really know whether the concept will be suc­cess­ful. Maybe you expect a longer build-up phase, or you don’t want to give up your main career. In any of these scenarios, part-time self-em­ploy­ment is a good option. You remain in an em­ploy­ment re­la­tion­ship, but still start your own business on the side. In summary, these are the benefits offered by starting out your self-employed business on a part-time basis: 

Maybe you’re unsure whether or not your business idea is solid. If you start it off as a side gig, you can test out your business concept with a lower risk level. Does the business work the way you planned? Do you get enough customers? You still have the op­por­tu­ni­ty to make changes to the business model if necessary. You have time to learn and prepare for full-time self-em­ploy­ment.

Par­tic­u­lar­ly in the early stages of self-em­ploy­ment, a regular income offers financial security. Depending on the desired activity, setting up a business can initially require high in­vest­ments. The more you can borrow from your current income, the less dependent you are on savings and bank loans. In addition, during the start-up phase, you should expect your income to grow gradually.

It is also easier to bridge dry spells if you are only part-time self-employed. In addition, there is always the pos­si­bil­i­ty that a company will fail. If you have another source of income, this setback is easier to cope with.

So, you want to be self-employed but don’t know where to start? In principle, there are no re­stric­tions for part-time self-em­ploy­ment. You can work doing whatever you want (as long as you fulfil the con­di­tions of a possible pro­fes­sion­al code), and you can earn as much as you want. In practice, however, certain rules and re­stric­tions must be observed. These include:

• Employees should always consult with their employer before beginning a self-employed side gig
• Social security con­tri­bu­tions need to be clarified
• Secondary income can have an impact on social benefits

Your primary oc­cu­pa­tion may affect your part-time self-em­ploy­ment (if you’re employed, a student, un­em­ployed) side gig. In any case, you should make sure you are thor­ough­ly informed on what needs to be taken into account before you begin working part-time on your side job with regards to taxation and social security.

Otherwise, the same rules apply to part-time self-employed workers as to other self-employed:

• You need to register your business with your local Secretary of State
• You also need to register as self-employed with the IRS

How you set yourself up for in­de­pen­dent work depends strongly on what you want to do. Maybe you have an exciting business idea or you want to turn a hobby into a pro­fes­sion. In any case, you need to consider how much money and time you want to invest, what for, how much you want to earn in return, and how long it is likely to take you to reach your goal. In short: you need a concept for your planned part-time side job (a “business plan”).

This kind of concept, or plan, is important. You must organize your thoughts and recognize whether and under what cir­cum­stances your planned part-time work is worth­while and what you have to do in order to achieve your goals. The plan will also help you to identify the risks you are taking with your side gig. How much capital seed do you need? Can you raise it yourself or do you need a bank loan? You may need to rent and furnish an office or workshop. The other extreme would be that in your spare time you are a web designer or copy­writer on your home computer. Then you would not need any in­vest­ments and you would hardly have any financial risk.

No matter how you want to set up your side gig, here are some important steps you should take to get started:

Check in advance whether you need a permit or special qual­i­fi­ca­tion to do your part-time self-employed work, and if so, which ones. Do you want to pursue a pro­fes­sion that requires a permit? There are licensing re­quire­ments for a wide variety of jobs, including:

• Property developer
• Financial services
• Driving in­struc­tor
• Debt col­lec­tion agency
• Real estate agent
• Travel industry
• Trans­la­tor (au­tho­rized)

These approvals are often linked to pro­fes­sion­al qual­i­fi­ca­tions. Last but not least, many prac­tic­ing trades are subject to the oblig­a­tion to have a master craftsman cer­tifi­cate.

In the USA, you can be self-employed as a sole pro­pri­etor, in­de­pen­dent con­trac­tor, part­ner­ship member or limited liability company member (if the company is not classed as a cor­po­ra­tion). The US gov­ern­ment pri­or­i­tizes finding out whether a self-employed person truly is self-employed, as it is a common area of fraud in the economy. It is important to make sure you assess what kind of self-employed worker you are to protect yourself legally.

While it is perfectly legal to have a part-time self-employed side job, be sure to consult your work contract to ensure that your company has not expressly forbidden it. If the business area that your part-time self-employed work is in is the same as your main job, you must also make sure that there are no non-compete clauses and that you aren’t engaging in a conflict of interest. Here’s a breakdown of the ways your side gig could neg­a­tive­ly affect your main job: 

A part-time side job may be a bad idea if it places so much strain on you that you aren’t able to fulfil the duties of your regular job – for example, if it makes you con­stant­ly tired.

Many employers include a non-compete clause in their employee contracts. This is to ensure that you do not take the in­for­ma­tion, skills and contacts you acquire at your main job elsewhere (either to a new employer, or to a self-employed side job). Some em­ploy­ment contracts even contain a non-com­pe­ti­tion clause beyond the employee’s departure from the company. Be sure to peruse your contract carefully before beginning any self-employed part-time work to ensure that you are legally covered.

According to case law, the re­stric­tion of secondary ac­tiv­i­ties by the employer may be per­mis­si­ble if the employee rep­re­sents the employer’s business ex­ter­nal­ly – as a manager, for example. An employee’s conduct in their free time sub­se­quent­ly has an effect on their employer, so they must also take into account the employer’s le­git­i­mate interests here, including when taking up a secondary job.

In any case, it is advisable to inform your employer about any planned part-time self-em­ploy­ment ac­tiv­i­ties and consult with them about it. This will help to avoid potential conflicts at a later stage.

In the US, com­pre­hen­sive health insurance is often granted through your employer. If you are self-employed, then it is up to you to find and pay for your own health insurance. This can be extremely expensive, resulting in many people opting not to have health insurance – often with dis­as­trous con­se­quences. However, even opting out of health insurance can incur a penalty when filing your taxes. A popular option is getting an insurance plan from Health­Care.gov, a gov­ern­ment sub­si­dized health insurance provider. However, premiums can still reach hundreds of dollars per month, and the threshold is $48,240 – if you earn any more than this, you are in­el­i­gi­ble for the program.

If you are offered health insurance through your main job, you can continue with that premium for as long as their offer remains open to you. Having a part-time self-employed side job should not affect health insurance offered through your main job. However, it is worth con­sult­ing with a legal health pro­fes­sion­al to make sure you are adhering to any and all state reg­u­la­tions within the health insurance field. Health insurance is one of the most complex in­sti­tu­tions in the US, and con­sult­ing with a pro­fes­sion­al is the only way to ensure that you can be fully covered, both legally and medically. More in­for­ma­tion on self-employed health insurance options can be found on eHealth.

As with all forms of income, you will need to pay taxes on any money you make from your part-time self-employed job. If the main reason for your side job is to turn a profit, and the work is regular and con­tin­u­ous, then you qualify as self-employed for tax purposes. If you are self-employed, you can pay your taxes by filing Schedule C, or Schedule C-EZ if you earn less than $5000 per year from your side job.

If you earn more than $600 per year, you will also need to fill out a 1099-K form or 1099-MISC form which allows you to log any income made from your side job.

If you have earned money from renting property, then you will need to report this income using a Schedule E. If you owe more than $1000 in taxes, you have to file quarterly estimated tax payments. To do this, you will need to fill out Form 1040-ES. Estimated tax can be paid through the mail or online using the Elec­tron­ic Federal Tax Payment System (EFTPS). This can be found on the IRS website.

Like full-time self-employed workers, those with a side job can use allowable de­duc­tions to reduce their tax bill. If you can prove that an expense is being used solely for your business, then you can deduct the cost from your tax bill. De­duc­tions fre­quent­ly expensed by part-time self-employed workers include:

• Space in your home used ex­clu­sive­ly for business
• Car-related expenses that are ex­clu­sive­ly related to business (mileage, gas charges for rideshare drivers)
• Tools or equipment required for the job

More in­for­ma­tion on what expenses can be deducted by a self-employed worker filing taxes can be found on the IRS website.

If you are self-employed part-time, you should also be sure to insure yourself against damage caused by your second job. The most important ones to keep in mind include:

Business liability insurance covers damage caused by your pro­fes­sion­al activity. These damages often have simple causes, but can be very serious. You might injure a customer on your business premises, or make a technical error as a craftsman – one window in­cor­rect­ly installed and the house now has water damage. Major damage can also be caused with faulty software or viruses, which you could spread un­wit­ting­ly via email.

If you use an office or workshop, inventory insurance will protect your inventory from various possible damages. This insurance can also be extended to include insurance against natural hazards (storm, flood, etc.), glass breakage or business in­ter­rup­tion.

Click here for important legal dis­claimers.