The rise of the solo workforce
The great promise of independent work is the chance to reinvent the way we work and live. According to Upwork and the Freelancers Union, over 57 million American workers today choose to work outside a traditional job, so that they can be flexible with their time, pick the projects that excite them, and construct their own vision of success.
The forecast is sunny for full-time soloists: independent workers, solopreneurs, and self-employed people who don’t plan to return to traditional jobs or hire employees. They earn more than their counterparts, enjoy a strong and steady job market, and benefit from the new normal of remote work. It’s no wonder that this is a booming population, poised to make up half the US workforce by the year 2050.
A complicated financial picture
But, living the dream comes with unique financial considerations and back office work you never had to think about when you had a 9-to-5 job. It means, among other things, saying goodbye to tax withholding and saying hello to quarterly estimated taxes. As a traditional employee, your employer withholds taxes throughout the year. When you’re self-employed, you make quarterly estimated tax payments at least four times a year—sometimes more if you’re paying federal, state and/or even local taxes with different due dates.
“Throughout the product development process for bSolo, we interviewed dozens of soloists. They told us that the effort required to have enough saved for taxes, and even the tax process itself, was enormously stressful and took up hours of billable time.”
That sounds bad. And it is. But these are symptoms of a more serious financial problem that is endemic to self-employed people.
We call it “the self-employed savings gap.” According to the US Department of the Treasury, forty-two percent of people with traditional jobs are able to save for their post-work years. For the self-employed, that number drops to eight percent. Why is that?
Our research indicates that balancing a fluctuating income with steep quarterly tax payments—for example, a total tax obligation of $10K for an annual income of $75K—instills an acute sense of financial insecurity and discourages people from saving for retirement.
Payroll, the unsung hero
We have since come to see payroll as the most underrated employee benefit. Not just because it’s predictable, steady income. Rather, it represents a sophisticated support system that employees get as a default. Think about it: whenever you get paid, any tax withholding, Social Security and Medicare contributions, and retirement contributions are portioned out even before your income hits your bank account. You don’t miss the money you don’t see.
But, as a solo worker, you have to shop around for replacements to this neat and tidy system. And, you have the additional burden of taking money out of your own paycheck to fund all of these things.
bSolo, incubated in Fidelity Labs, is a smart tax assistant for the self-employed. It combines auto-saving for quarterly tax payments and direct payments to tax authorities in one simple, streamlined service. This is phase one of creating a payroll-like savings and benefits structure for the solo workforce—convenient support that makes it easier for every American worker to thrive, no matter how they earn their living.
This article was originally published on LinkedIn Pulse by Kim Langway, Co-Founder and Head of Product for bSolo, incubated in Fidelity Labs.
bSolo does not provide tax, legal, investment, or accounting advice. This material and website has been prepared for informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal, investment, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Banking services provided by Evolve Bank & Trust, Member FDIC.