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Four Ways to Ease the Transition From Part-Time to Full-Time Freelancing

September 28, 2017

Leaving behind the routine and benefits of a W-2 job presents unexpected challenges, even if you already dabble in freelancing. Read on for a few ways you can smooth this transition and set yourself up for a successful freelancing experience.

 

Mac desktop computer on a desk with keyboard, headphones, and iPhone1. Secure Health Insurance Before Leaving Your Job

Many freelancers face the significant trouble of affording and maintaining health care coverage. And few things throw off your budget like discovering anticipated coverage offers fewer benefits than your previous plan or costs more than expected.

If you’re not keen on jumping into another full-time job after you’ve gotten a taste of freelancing, get a solid health insurance plan before leaving your job. Fortunately, the “gig economy” and its resulting rise in freelancing arrangements means more health care options than ever.

Freelance Co-ops or Partnerships

Organizations like the Freelancers Union create freelancer-owned cooperatives that help freelancers enjoy economies of scale by harnessing their collective bargaining and purchasing power. With these cooperatives, freelancers in a variety of industries can enjoy health care benefits (including dental and vision benefits) at competitive rates. By joining forces with other freelancers, you take advantage of lower prices and better benefits.

You also may be able to obtain health insurance and other benefits through a local or regional cooperative. The U.S. Federation of Worker Cooperatives maintains an extensive list of these cooperatives, from food co-ops to unions that can secure employee-like benefits for their non-employee members. You can easily search by industry, state, or organization name.

Cooperatives offer flexibility and few barriers to entry. If you don’t find the type of group you’re seeking but know other freelancers could benefit from a collective bargaining arrangement, start your own freelancer-owned cooperative.

COBRA

If you’re happy with your current health insurance policy and can afford the portion of your premium your employer once paid, continue this coverage through COBRA. By paying up to 102 percent of the total premium cost of your employer-sponsored health care plan, you can keep this coverage for up to 18 months after leaving employment. This continued coverage provides you with some leeway to determine your next steps.

One of COBRA’s most unique benefits is its retroactivity. With most insurance policies, those unfortunate enough to be injured after health insurance coverage lapses will be solely responsible for resultant medical expenses. Under COBRA, you can revoke your waiver of continued health care coverage at any time during the 60-day election period, making your coverage retroactive to your last date of employment (as long as all associated premiums are paid).

This means if a previously insured household member needs medical care within 60 days after your last day of work, you can revoke your COBRA waiver, pay any unpaid premiums that have accrued, and receive the same level of service (and insurance coverage) you once had through your employer.

Spouse’s Insurance

If your spouse or domestic partner receives health care coverage through his or her employer, price this as one of your options. Even if this health care coverage isn’t as robust as the coverage you previously enjoyed, fully investigate this option. You may find this coverage to be your best option.

State or Federal ACA Exchange

As a final option, purchase a private health insurance policy on the federal (or your state’s) Affordable Care Act exchange. These exchanges provide access to insurance for those who don’t necessarily have an employer-sponsored policy available or who dislike the terms or price of their employer-sponsored policy.

Many policies listed on the health care exchange also offer subsidies (in the form of tax credits). They base subsidies on your prior year’s income. Such a policy keeps health care and tax costs down when your income and expenses remain in flux.

2. Keep Your Networks Active and Healthy

Maybe full-time freelancing appeals to you because you want to avoid forced workplace socialization. However, networking relationships remain important for freelancers who mainly work alone. Staying in touch with old colleagues or vendors helps you drum up new work. Also, networks often lead to new connections that may present opportunities to expand your business.

During your transition period, make a special effort to nurture your existing networks. For example, schedule a monthly lunch with colleagues, forward interesting articles to an old supervisor, or join a local club.

If you’ve never been a social butterfly, opt for “natural” networking. Skip gatherings billed as networking events and instead focus on making individual connections. One popular networking challenge asks participants to meet with four people they know and another four they don’t each month. This likely stretches your comfort zone without breaking it, helping you build confidence while expanding your reputation within the community.

3. Automate What You Can

Many freelancers leave the 9-to-5 world for one of two reasons: They’re tired of the daily grind, or they’re certain they will make more money on their own.

If you fall into the first category but hope to join the latter, focus energy on “work that stays done.” For example, automate tasks that eat up otherwise-productive time and monetize your down time by generating residual income.

Create templates for invoices, blog posts, or billing quotes or design a pivot table to instantly see which tasks generate the most income. When it comes to residual income, consider self-publishing a how-to ebook or placing targeted advertisements on your blog or website.

When you free up time through “work that stays done,” you avoid the daily grind of an overstretched “to-do” list. Learn to nurture multiple sources of income that keep the cash flowing during slow times.

4. Don’t Be Afraid of Underpayment Penalties

Even if you made estimated income tax payments before, switching to full-time freelancing complicates the tax planning process. And if you haven’t made these estimated payments, it’s time to start.

As a freelancer, you must pay at least 90 percent of your current federal income tax bill or 100 percent of what you owed last year (110% for married filers whose AGI is above $150,000). However, this could subject you to an underpayment penalty. While most freelancers do all they can to avoid this penalty, this isn’t always the best path.

For the 2016 tax year, the most recent year data is available, the underpayment penalty was only 4 percent of the total underpayment amount. This translates to a penalty of $40 for every $1,000 underpaid.

Your freelancing business could have specific cash needs during the calendar year. Instead of financing these cash needs, use the funds you earmarked for taxes. Paying any tax penalties on April 15 might be more cost effective than financing those needs through other means.

However, this approach requires meticulous calculating. You don’t want an unexpected tax bill and surprise underpayment penalty. Confirm that paying the underpayment penalty outweighs the cost of paying interest on borrowed money.

Jumping into full-time freelancing feels a lot like skydiving. Veteran freelancers make this process look fun and effortless. But when it comes time for you to jump, you may cling to the relative safety of the plane. Fortunately, planning for health care expenses and tax withholdings, optimizing your business network, and streamlining the way you work prepares you for any surprises.

By Liza Ford

Liza Ford lives in flyover country with her husband, daughter, and three large fish who once collaborated in using a decorative rock to hammer an unrepairable hole in their tank. A relative noob to the world of freelance writing, she enjoys roller skating, reading, writing, and beer tasting (sometimes all at once).

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