The difference between rates and wages is not always clear to newly self-employed people and their wage-earning clients.

Both look similar on the surface; both are expressed in dollars and cents per hour.But they each represent something very different.

Wages are the payment a worker receives for his labor.

Rates are the payment a business receives for performing a serivce to a client. Inaddition to the labor used in performing that service, rates must cover thebusiness's overhead.

Because of that, rates have to be higher than hourly wages earned by employees forcomparable work.

Most newly self-employed workers are former employees. They are accustomed toreceiving pay based on wages. Because they don't understand the differencebetween rates and wages, when they start out, they tend to set their rates too low.

To survive, your rates must be high enough to pay the bills and enable you to earn aliving.

Some of the differences between a self-employed person's rates and anemployee's wages are explained below.

WAGES

? If you are a wage earner, you are due an hourly wage just by being present andwilling to work at a set time, for the period of time demanded by youremployer.

Your wage is the payment for your labor.

? The employer supplies the necessary equipment and supplies for you to do thework. And, the employer supplies your workplace.

? You enjoy all of the legal and social protections due to employees such asUnemployment Insurance, and employer paid Worker's Compensation Insurance.

? Most full-time employees enjoy fringe benefits. These range from paid vacationand sick days, subsidized health insurance, retirement benefits, etc. to stockoptions and more to higher ranking employees at larger companies.

RATES

? As a self-employed service provider, you receive income based on your billablehours, that is, time spent on performing services for your clients.

? You furnishes your own supplies. Unless the service is one that is performed off- site, you supply your own workspace.

? You have to equip yourself to be in business and provide your services: You mustprocure and equip your workplace, invest in skill and product development, marketyour services, purchase business insurance, and handle billing, recordkeeping andcollections.

? As a business owner you take on a great deal of risk. It is reasonable, andexpected, that your rates should allow for a reasonable profit over and above yourexpenses and salary.

The above is true for any business. Below are additional costs you pay because youare self-employed.

? Unlike most of your employed counterparts, there is no employer subsidy for yourhealth insurance. And, as an individual, your costs will be higher than they would beas part of a larger organization.

? Aside from Social Security, you are totally responsible for your own retirementnest egg.

? You will pay both the employee's and the employer's share of the FICA tax burden(15.3%); double the burden that falls upon your employee counterparts. The IRSallows limited deductions for this tax, but your net share is still far higher than foryour employed counterparts.

But you can only bill for services rendered.

The upshot is that as a self-employed service provider you must cover manyexpenses that employees do not. Therefore you should have no qualms aboutcharging an adequate rate to cover your expenses and make a living.

Ellen Zucker's site, http://www.selfemployment101.com, has articles and resourcesto help the creative sole-proprietor earn a living and create a life.

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