Working freelance vs. permanent contract jobs

Hello All,

I found a fixed term job, currently in trial period. I have an offer to work as freelancer for 3 to 4 months, now i am really confused about whether to stay in my fixed term contract or to go for freelance. I know this question is very generic but i'll it anyway.

Fixed term pros and cons: No xtra time paid and cannot be claimed as holidays, after fixed term contract cannot be terminated easily

Freelance: monthly netto is doubled and paid hourly.

I would be interested to hear thoughts on the risks involved is in moving from a fixed job to freelance job.

I think you've outlined the risk yourself: you have more job security and presumably benefits with a permanent contract. It sounds as if you make more money freelance, so you have to figure out if the money is worth that kind of risk and how likely you are to get another project if the current freelance offer doesn't continue pass the specificed time frame. You should also consider the what benefits, if any you will get as a freelancer, and if none how much things like health care will cost you out of pocket.

Goodluck

If you feel you can sell your skills sufficiently to enough customers to earn twice the money in half the time you break even. I would say this is a minimum requirement to evaluate the risk. If you earn more or work more, then you are better off, so the risks pay off. You just need to be confident in yourself and in the sellabillity of your particular skills over a long term.. Don't forget, however, there is a trade-off in that you will need to take care of your professional well-being (accounts, taxes) and future (savings, pension), as well as living in a foreign land with unusual rules and regulations, that most full-time jobs take care of for you.
As a by-line, you may need to learn to write and spell too...

Hi,

I have been working for some years as a freelancer for a leading telecom company. I now have the option of taking a permanent position in the company at the cost of having my net salary cut to half.

The Plus of going permanent are

1. better chances of long-term growth (most senior managers are not freelancers but permanent employees)
2. a stronger resume because of official company name and position,
3. chances of having the company pay for further studies (I plan to do an MBA from Insead or IMD which would cost me a fortune if I were to do it on my own)
4. better job security in these days of financial crunch.

• The biggest con is having my net salary reduced to almost half even tough I will be doing the same work.

Do you think its worth the price? Has anyone of you done this. I know many people going from Permanent to Freelancer but none in the reverse direction. What do you suggest?

Thanks in advance.
E J

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Whether or not it's worth it depends entirely on you and your personal circumstances. If your net salary is going to drop from €150k to €75k for example then you're probably going to be just fine. Of course even at that it depends on the lifestyle that you wish to maintain and eleventy-hundred other factors which are completely specific to you.

Oh and forget #4, it's a myth. There is no difference in job security between freelance and permy. Perhaps there used to be five to ten years ago, but not nowadays.

One positive thing I can come up with is that the company will be contributing to your health insurance.

I am paying through the nose for mine.

I've hopped between both in my time. It depended on (a) the opportunity and - b- wider life circumstances. Also a wide range of "freelancing". Some work set hours in an office. Others work as and when they like.

I do the latter and now it's lifestyle factors that make me prefer self employment - more flexiblity, more autonomy, outside the loop of office politics, no getting into a rut and being in the same place in 20 years time. It's not just cash gained vs cash lost. Harder to "cost" the intangible benefits of freelancing though. OK you pick up healthcare and study costs yourself but they are tax deductible when you pay them and so really "cost" much less than you fork out.

As a value judgement, I read your post as you feeling that you really want the permy job. Fair enough, go for it. Probably fine. Might be wrong. We don't have perfect knowledge of the future. Of course your pay will drop vastly because your employer stumps up shedloads of payroll costs, overheads, takes on some risks and gives you stuff like training and development.

I freelanced for 18 years (for 2 companies, 15 and 3 years) and stopped in 2002 when IT went into meltdown...

I've upped my skillset to something more modern whilst working permie at a TV/Telekom company in Munich. I can't wait to get back into freelance but for various reasons that'll have to wait about 5 months. It really pisses me off to do my current job knowing I can be earning 3 time what I'm getting as a permie. As Keydeck said long-term security is a thing of the past. In fact the more chaos and uncertainty there is the better the opportunities for freelancers as companies often have hiring freezes but need externs to cover the work. All the talk about the company paying the social bits can be easily laid to rest if you've negotiated even a half-decent rate. Germans are generally very afraid to go freelancing as they still believe in the Siemens/BMW job for life scenario that isn't going to happen... You aften have to poker a bit when they say there's no budget for externs and you'll have to go permie, but if you're confident in what you're doing and especially if no-one else can do it then they always seem to find the funds last minute!!

This sounds like a contradiction in terms to me. As far as the Finanzamt is concerned, if more than 50% of your income is from one source, then you are not a freelancer and that company should be paying for your pension/healthcare etc.

Following on from that, the main advantage of being a freelancer is that you can earn money from various sources, so if one dries up then you still have other income. As a permanent employee, you have all your eggs in one basket. But then it sounds like this is already the case, in which case the company is breaking the law by not offering you a permanent contract – at least as far as I'm aware.

Hi coolguy26

I guess most of the things are already said, but would like to add the following comments...
I am working since 5 years as parmanent, and now seriuosly considering free lance. The reason are mostly

1.more money,
2. more freedom
3.henever you are getting bored with one job or company , you can change it.

But dont forget the cons

1. Less security. Specially with big companies, when they start to cut jobs, the first to go without any delay are the free lancers. then the permis, with some 2-3 months notice hopefully...
2. You have to be very active, both at your current job and preparing with the next, if things doesnt go well here.
3. More paper work regarding tax, health insuranc etc. But I guess you can take professional help here...

In general, for foreigners, with no belongings to any particular city, free lancing sounds a good option. And also , whern economy goes worse, free lancing often offer more options than permi,as companies want people for shorter time...

I know a lot of people who are self-employed or freelance (German as well as immigrants) who get all their income from one source for long periods. Aside from the scenario here, even freelancers working for diverse clients are actually paid by just one entity (i.e. an agency). From my random / anecdotal experience, I can only say that I don't hear of it being challenged. Perhaps Finanzamt round my way have biger fish to fry than people that are fending for themselves, outside the welfare net and (often) paying significant tax?

Hi,

Thanks everyone for the your inputs. Based on your advices, I declined the offer to go premanent. I took some risk because of the argument ... "there isnt enough money for freelancers..." coming from the company. so hoping the risk pays off ...

As a final argument to persuade me I was told that for premis there is definitely a salary raise every year (one decided by union + what u can get from your direct manager). It is true. All permis in my group have had it in the last year.

But I have also heard that even for freelancers it is possible to ask your company to give you a rate increase after a year or so. Is it true? How much can I ask for as a freelancer after a year? 5% ? 10% ? I know my work is important for the company but this latest discussion has put me on the back foot in any financial negotiations in the near future. So would 5% be a good figure?

EJ.

As a freelancer, your pay is the market rate. So ask for whatever that is. Certainly no assumption that the rate you start on is the same forever. Pay scales and annuals increments are for employed staff.

I have a decision to make regarding taking a part-time position either as a freelancer or as a 20/hr per week contract position. I've read all the postings on this topic that I could find, but I still have some questions.

I am currently not employed, and receive health insurance through my spouse, who has a regular full time job here in Germany. I was told that in a contract position I'd have a percentage of my salary withdrawn to pay for health insurance, but as a freelancer I can continue to be insured through my spouse, regardless of how much I earn. Can anyone verify this? Also, as others have said, they said that as a contractor I'd have to pay unemployment tax and other taxes that I won't have to pay as a freelancer. I'm not worried about job security, as I've pretty much been guaranteed that once this job grows into a full time position then I will have to switch to a contract position, and even if it doesn't work out my spouse can still pay the bills. And I'm not worried about not getting pension benefits as it's unlikely I'll pay into the system long enough to actually get anything back, either way.

So, having dispensed with all those pesky issues, can anyone suggest how I can estimate how my taxes would differ in the two situations? I will have very few expenses related to my job, as they will be purchasing all the necessary equipment and providing an office space for me, and I don't own a car or a cell phone. As a contract worker they said that I would be tax class five, since I'll be earning less than my spouse. Will I be in the same tax class as a freelancer? If I can't take any exemptions, how can I estimate how much tax I'll end up paying as a freelancer, given my yearly salary and my spouse's? Can I use an online tax calculator to get a sense of my take-home pay?

Thanks for any help, and I apologize if this has been covered before, and I missed it.

I just wanted to add that I tried using this calculator (http://www.lohn1.de/lobn.htm) to estimate my tax rate, assuming no work deductions. I wasn't sure if a freelancer has to pay any of the social insurance taxes, so I just unchecked all the boxes. When I did this, put in my expected yearly earnings, and marked myself as tax class five, it figured a total tax of 33%. If I assume that my employer is wrong, and I would have to pay the 15.5% health insurance cost myself, then this would increase to almost 50% tax. Do these numbers sound correct, given an hourly salary of 30 euros an hour, and about 20 hours of work a week?