How much do sovereign professionals earn?

Understanding the earnings of sovereign professionals (in the UK) is more difficult than it might first appear. This report from the Office of National Statistics (Trends in self-employment in the UK) makes a good stab and much of the data below comes from that report. However, it is necessarily flawed and, I would argue, most likely understated, especially for full-time self-employed.

How to define self-employed

The problem lies in legal status and the way that income is taxed. In the UK, if you are a sole trader, then you trade on your own account. You bill your services as, say, John Smith, Plumber. That income less your business expenses is subject to income tax (ignoring national insurance, another form of employment tax, for simplicity).

However, there is another option. you can incorporate a limited company and trade through that. The limited company has its own legal identity and the profits it makes belong to it (and its shareholders). You can then take your share of profits as a dividend on the shares you own and/or the company can hire you as an employee and pay you a salary. Both dividend and salary are subject to taxes, but the rules are different and the net effect can be different, too. It’s often more tax-efficient to use a limited company structure (though less so than it used to be).

There are other reasons, too. Many people like the clear separation between business and personal. Being Director / Managing Director / CEO of ABC Ltd. can appear more senior and lend gravitas to a business card. It can also signal, perhaps, greater seriousness or commitment to the business. These things  can be illusory, but effective. Perversely, a limited company (by definition, limited in its liability) can find it easier to obtain business loans than a sole trader (who is liable to the full extent of their personal worth).

In the business-to-business (B2B) market (e.g. independent consultants, designers, interim managers etc.) and especially at the more expensive or senior end, the limited company model is (I would suggest)  much more common than the sole trader. And, in any survey, the sole employee-director of a limited company will necessarily respond that he or she is most definitely NOT “self-employed”.

About the self-employed

All of that said, the ONS report throws up some interesting data.

Population

There are now 4.8 million self-employed people in the UK, 15.1% of the labour force and up from 3.3 million (12.0%) in 2001. And, more of those self-employed people are solo workers: 4.0 million in 2016, compared to 2.4 million in 2001.

Income

Median income for full-time self-employed in the financial year ending March 2016 was £347 per week (£18,044 pa).

Median incomes for the self-employed have not increased as much as those of employees or general inflation:

  • Increase for full-time male self-employed (2000-01 to 2015-16) = 22.8%
  • Increase for full-time male employee (2000-01 to 2015-16) = 44.8%
  • Increase for full-time female self-employed (2000-01 to 2015-16) = 22.9%
  • Increase for full-time female employee (2000-01 to 2015-16) = 52.8%
  • Cumulative inflation over the period = 51.8%

Education

Interestingly, the share of self-employed with degree-level (or higher) education has grown from just 19.3% in 2001 to nearly one third (32.6%) in 2016.

Degree-educated, self-employed people now make up 4.9% of the total (employed plus self-employed) labour force compared with just 2.3% in 2001. As the ONS report says:

Growth in self-employment has been driven mainly by those who have a degree (or equivalent), increasing its share amongst both the self-employed and total employment, showing that relatively highly-qualified individuals are becoming more concentrated in self-employment.

Wealth

In terms of property wealth, for the 35-54 year-old age bracket, 27.0% of self-employed have property worth over £250,000, compared to just 17.6% of employees.

For the over 55 age-group, the difference is even more marked: 56.2% of self-employed compared to just 37.5% of employees.

By contrast, the self-employed typically have much smaller pension pots.

Aged 35-54, just 14.0% of self-employed have a pension pot of £100,000 or more compared to 34.2% of employees. And, 45.1% have no pension provision (other than state pension) compared to just 16.4% of employees.

In the older age group, 34.8% of self-employed have a pot of £100,000 or more compared to 56.4% of employees. Nearly a third (30.3%) of 55+ years have zero pension provision compared to 14.2% of employees.

In terms of cash, the figures are neck and neck except for the two extremes of the 55+ age group, where the self-employed generally have greater cash wealth. There are fewer self-employed with less than £20,000 in cash assets (51.9% compared to 59.4% of employees) and more self-employed with greater than £100,000 in cash(19.4% compared to 12.2% of employees).

What about those limited companies?

Elsewhere, ONS data hints at possible growth in sovereign professionals operating through their own companies.

Between 2010 and 2017…

  • The number of micro-businesses (0-9 employees) has grown by 28.2%
  • The number of employees in those businesses has grown by only 18.9%, meaning the average 0-9 employee business is smaller.
  • In fact, the average employees per business has dropped from 2.5 in 2010 to 2.3 in 2017.
  • At the same time, the average revenue per employee has increased from £127.7k to £144.2k. Total revenue has increased by 34.2%.
  • By contrast, in the next band of 10-49 employees, number of businesses and number of employees have grown by around the same mount (17.9% and 17.6% respectively), while revenue has grown by only 12.3%.

In essence, there are more businesses of smaller size, generating income more effectively.

Given the wide bracket of 0-9 employees, that’s hardly definitive, but it is at least suggestive. The next task is to try and get more granular on size and on business sector.

In the meantime, I hope this is a useful summary for those interested in the world of sovereign professionals.

 

Photo by Peter van Eijk on Unsplash

 

 

The Gig Economy Data Hub

This looks interesting and useful.

The Gig Economy Data Hub aims to provide comprehensive information on all aspects of the gig economy.

The home page gets off to a great start:

A freelance graphic designer earns $25,000 for an ad campaign. A teacher drives for Uber on the weekends. An electrician owns and operates a successful small business. A stay-at-home mom sells Mary Kay cosmetics on Facebook. A recent immigrant cleans houses under the table. A retired woman knits hats to sell at craft fairs. What do these workers have in common?

There is more to what is currently called the gig economy than flavour-of-the-month media stories suggest.

The Data Hub is a collaboration between the Aspen Institute’s Future of Work Initiative and Cornell University’s ILR School. The data appears to be all US-focused, but the lessons and many of the findings will doubtless translate at least to the UK and possibly beyond.

 

Photo by Lucian Novosel on Unsplash

Beyond the To Do list – Nicholas Bate

Yet another essential Basics 7 list from Nicholas Bate:

Tip 1: ensure it captures not only what you have to do but also what you want to do.

Tip 2: ensure it also addresses a world beyond work.

Tip 3: measure productivity by pay-off not simply the tick: go beyond ease, urgency and what’s next…

Read the rest, here.

 

Photo by Glenn Carstens-Peters on Unsplash

A place to live and work

Back in the century of 9 to 5, there was Home, there was the Commute and there was the Office.

In the age of the sovereign professional, the Commute often disappears. Home and Office become one.

According to the UK’s Office of National Statistics, 4.3 million people now work from home. That’s 13.6% of the total workforce (both employed and self-employed). However, the data suggests that half (50.3%) of all self-employed people work from home, either wholly or using home as a base from which to visit clients.

That’s a lot of home-offices.

But, where do you start? You’ve shrugged off the shackles and the corporate comfort blanket. You’ve broken free from the gilded cage. How do you carve a place to work from your place to live? Here are a few considerations and inspirations.

Considerations

  1. How much space do you need? Maybe, just a quiet desk will do,  but will clients visit you? Do you need a separate work-space (studio, treatment room, consulting room, recording studio, etc.)? And a waiting room,too? Some rooms may have a dual business/domestic purpose, but will your partner welcome the 50″ screen in the new dining/meeting room?
  2. Seasons and services. Separate garden rooms and garage conversions are popular, with the advantage of still maintaining a degree of separation between work-life and life-life. But, consider if they will work in all seasons: from the dead of winter to the heat of summer. Do you have adequate power (including the need for heating) and internet access?
  3. Legals, tax and admin. How will working from home affect the following:
    1. Does your mortgage or tenancy agreement allow working from your home?
    2. What about property tax? If you work alone from a home-office, this may be allowable under domestic “poll tax”, but if you have a studio or treatment room etc, you might yourself liable for business rates. Check before you begin.
    3. Insurances. How does your business affect your building and contents insurances? Do you need public liability insurance? What about a risk-assessment of your home if you will have clients visiting?
    4. This government web page gives an overview, here.
  4. Peace and privacy. Can you work uninterrupted? Even during the school holidays? Kids, dogs and washing machines all lose their charm when they are a regular soundtrack to your conference calls. And, even the best prepared television interviews can be derailed, as Professor Robert Kelly discovered in this BBC News interview:

Inspirations

The home office is hardly new. Every working farmhouse is a head office. Therapists and tutors have always worked from home to some degree. All have adapted to the business needs of their owners.

Try these famous locations for inspiration:

Venice

Take a punt, or a putt-putt down the Grand Canal. Those elegant palazzos were built, business-first, by the wealthy merchants of the city-state as home and office.

On the water-level was the impressive canal-side entrance and a ground floor of storerooms and offices for transacting daily business. The next floor up (first floor for Brits, second for Americans) was the piano nobile or grand floor, lavishly decorated and used for entertaining. The floor above was the family’s private apartments.

Photo by MURUCUTU on Unsplash

Sir John Soane’s House / Museum

During his life, the architect Sir John Soane (Bank of England, Dulwich Picture Gallery) turned his house into a museum and source of inspiration for his draftsmen and clients. It was home, office and collection.

Soane moved to 12 Lincoln’s Inn Fields in 1792 and, as his collection grew, he acquired numbers 13 and 14 , remodelling the houses and stables to accommodate an innovative, hinged Picture Gallery (that houses Hogarth’s A Rake’s Progress) and more space for the collection. He negotiated an act of parliament for the house to be preserved as it was when he died.

If you’re in London it’s worth a visit – for research purposes, obviously. It is a glorious clutter, muddle and inspiration.

In the basement is the sarcophagus of Seti I, of which Wikipedia says:

After the Seti sarcophagus arrived at his house in March 1825, Soane held a three-day party, to which 890 people were invited, the basement where the sarcophagus was housed was lit by over one hundred lamps and candelabra, refreshments were laid on and the exterior of the house was hung with lamps. Among the guests were the then Prime Minister Robert Jenkinson, 2nd Earl of Liverpool and his wife, Robert PeelPrince Augustus Frederick, Duke of SussexSamuel Taylor Coleridge, J.M.W. Turner, Sir Thomas Lawrence, Charles Long, 1st Baron FarnboroughBenjamin Haydon as well as many foreign dignitaries.

Image: Sir John Soane’s Museum

Sigmund Freud Museum, Vienna

By contrast, the apartments where Freud lived and worked from 1891 to 1938 are more modest. Freud moved there with his family when it was a new-build. As his practice grew, he took on the second apartment on the floor as his practice. Today, the living space is a museum and exhibition, with little furniture, but his consulting room and waiting room are furnished much as they would have been in his time. The famous couch, however, is in London.

Image: Vienna Convention Bureau

The apartment next door, perfect for separating work and domestic life.

Chartwell

Winston Churchill purchased his beloved Chartwell in 1922 and lived there until shortly before his death in 1965. As Wikipedia has it:

 In the 1930s, when Churchill was excluded from political office, Chartwell became the centre of his world. At his dining table, he gathered those who could assist his campaign against German re-armament and the British government’s response of appeasement; in his study, he composed speeches and wrote books; in his garden, he built walls, constructed lakes and painted.

When the Churchill’s purchased the property, they had it remodelled adding a three-storey wing with views over the Kent Weald. The property sits on a steep slope, so the  entrance level, ground floor room  of the extension is the middle floor and a large drawing room. Downstairs is the dining room, while upstairs, is Churchill’s large study. There is also a small library in the original house and, of course, books everywhere else.

Image: National Trust
Image: Andrew Munro

Chartwell is a beautiful retreat that still feels like a home. It’s not enormous like stately homes of previous centuries, but it has space to live … and to work.

Dickens London Home

Forty-eight Doughty Street was Charles Dickens’ Bloomsbury home for just 2 1/2 years, but it is beautifully preserved as a Victorian Home. It’s where he wrote  Oliver Twist, Pickwick Papers and Nicholas Nickleby.

If you’re a writer, you need only a quiet, well-lit study.

Image: Andrew Munro

And, possibly space to entertain.

From the merchant palazzos of a city-state to the modest study of a great writer, these homes were all designed to provide a place to work and a place to live.

How will you (re-)model yours?

 

Serfs up – The Economist on the gig economy

The Economist has an article on freelancing: Serfs up – Worries about the rise of the gig economy are mostly overblown.

I have a couple of thoughts whenever this comes up.

‘Twas always thus

There has always been a freelance / independent / gig economy / zero-hours sector. Indeed, if you take a long view, it’s the 40 hour nine-to-five that’s the exception.

My early career was in the hotel industry, a sector that couldn’t exist without what we used to term “casual staff”. You need 20 waiting staff for a banquet on Saturday night, then maybe nothing for a week.

It was always a two-sided market. If the individuals involved were good – i.e. reliable, skilled, etc. – they moved up the mental list of who to call first. But, you had to treat them right, too. If you didn’t offer the going rate, you couldn’t get the staff. They would go and work for another venue.  Similarly, if you didn’t feed them well, messed them around or if their manager on the night was a buffoon, they wouldn’t work for you. That all seemed fair enough.

That’s not really dissimilar from the work I do, today. If I do a good job and provide a great service, I get invited back. If I messed up, the phone (or inbox) would go eerily quiet. Along the way, of course, I’ve “sacked” a few clients, too.

Coase was correct

Back in 1937, the economist Ronald Coase explained why firms exist. One of those things that no-one had thought to question before. It was, he realised, all down to transaction costs. Where work is regular, predictable and ongoing, it makes sense for two parties to enter into an employer-employee relationship. Where the requirement is more ad-hoc, the business finds a supplier and enters a purchase relationship.

The last decade has seen a dramatic drop in these transaction costs. Firstly, through the email and the web, more recently through the advent of platform companies.

In so many ways, nothing else is different. It’s simply that the break point (for both parties) is lower, making it easier for individuals and larger client organisations to transact lower-value projects or tasks.

The answer (to anything) is rarely more legislation

As The Economist concludes:

If the courts rule that vast swathes of gig workers are in fact employees, they could raise costs, killing innovation and hitting jobs. Yet inaction brings risks, too. If a growing chunk of the workforce has to make do with poor pay and worse pensions, governments will eventually have to pick up the pieces.

It seems that the real trouble only occurs in the grey area where a client / employer seeks to have all of the benefits of an employment relationship (mainly control over time and schedules, the way work is performed, and the individuals’ ability to work for other firms) without the costs of employment taxes, statutory benefits etc.

And, that cuts both ways as well. There have been several cases where individuals have enjoyed the higher cash benefits of being classed as a long-term, self-employed provider of services, only to bring a court case for employee-related stock benefits that they had been “denied”.

But, in most of these cases existing employment law, sensibly applied, should cope. The last thing we need is the burden of “employment rights” on individuals who are perfectly happy with their independent, sovereign professional status.

That said, there is a political motivation for greater legislation. With most workers tucked up in nice, simple and centralised employee contracts, HMRC could contract out its tax collection to employer firms. Managing many more independent small businesses is harder. Today’s Times carries a report that the Chancellor Philip Hammond is planning a “tax crackdown on synthetic self-employed“.

The Treasury reckons:

The Treasury believes a third of people claiming self-employed status as a “personal service company” are actually full employees and should pay more tax.

It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.

Note: “high levels of non-compliance … could…”

 

Photo by chuttersnap on Unsplash

 

Don’t charge by the day … or, worse, per word

About a year ago, I had a long discussion with a prospective client about this. The simple fact is that charging by the day, or per word, creates an immediate conflict of interest: the client is motivated to go short while you are motivated to go long.

I was reminded of this by a marketing mail from John Niland’s VCO Global:

Charging for time is easy. It’s familiar in many sectors: from the oldest profession to the newest. However, there are three problems with hour/day rates:

1: While on the surface, a day-rate is easy to agree with your client, it creates a fundamental conflict of interestin most relationships. Your client wants the fewest days possible: you often need more time to do a quality job. Furthermore, the client is likely to involve you later rather than earlier, in order to save cost…

The webinar being promoted looks interesting.

 

Image: Photo by Aron on Unsplash

Something for the weekend – Jordan Peterson

These are really good: two (different) lectures by Jordan Peterson in Iceland. As I recall, the second lecture starts with some background on how he came to write 12 Rules for Life.

The book made its way to the top of the Must-Read pile and I’m currently half-way through. Exceptionally lucid.

And, as Stoic Week nears its end, I see a lot of commonality between Peterson’s responsibility-over-rights perspective and the Stoic perspective.

Set aside a few (well, five) hours to feed the mind…