“From a financial perspective, can I afford to not stay full-time?”
This is one of the most common questions we hear within our community, especially from those that haven’t yet “taken the leap” into a non-traditional work configuration. It’s a critical question, and the answer is entirely dependent on personal circumstances.
We have a cultural tendency to talk less about financial topics. And it feels like the opacity on this topic creates uncertainty that keeps people in full-time roles indefinitely - even when non-traditional work could work for them.
I’m excited to collaborate with our COO, Greg Siegel, on this one. At one time, we both navigated the transition from full-time to fractional. So we wanted to provide a couple frameworks to help you have a data-driven foundation for considering the financial impact of a change.
Molly Graham, one of our favorite leaders and writers, calls this: “Do the Math”.
Part I: What Categories Change If I Move Away From Full-Time?
While there are scenarios where part-time work can be more lucrative than full-time work (in particular, if you’ve found ways to keep your available schedule “full”), most of the people we work with make the shift understanding they’ll work less hours, spend more time with family, and have some tradeoffs financially.
In this first section, we try and summarize exactly what the financial tradeoff categories are – and in the final section we’ll offer some advice on how to put the financial impact in the broader life context.
Change #1: Incoming Compensation
Especially in technology roles, compensation packages can be complicated, making it equally complex to compare your incoming compensation now versus what it could look like with a part-time or interim role.
On the cash side, we typically see people can earn more on a nominal per hour basis when working part-time or in interim roles. Market rates for these roles are higher per hour, in part because employers save in total cost for the headcount (there aren’t the same average employer costs for benefits or equity) and often they recognize that getting access to your brain at any portion of your time is a benefit worth paying up for.
However higher nominal per hour earnings may not translate to higher total cash. How many hours you work is a major driver, and the period(s) between roles where you’re doing business development is also critical. We’ve heard from many that didn’t fully factor in what percent of the year they might be “between engagements”. This is more of a factor for project-based and interim roles than part-time, long-term (and in case you missed it, here’s our deep dive on the differences between the most common non-traditional configurations).1
In a full-time role, there are typically a variety of compensation items beyond cash, and many of these are often not as applicable for non-traditional engagements. Be sure to factor in:
Equity Compensation: Will I still have comparable equity compensation potential? If not: is the unexercised equity in my current role a lottery ticket, or does it have tangible likelihood of value?
Pseudo-Cash Compensation: Is my full-time employer making actual cash contributions via 401(k) match, HSA contributions or similar vehicles?
Income While on Parental Leave: Do I anticipate having paid parental leave in the foreseeable future via my employer? Provided I don’t live in a state where I’d still be able to benefit as a self-employed / part-time employee: what’s the value of that paid leave benefit to me?2
Change #2: Outgoing Expenses
For most people we speak with, expenses don’t change materially across their household when changing roles. But there are real areas that may change – both across personal expenses and work expenses.
Childcare or Caregiving Expenses: If part of my motivation is to spend more time with family, can any caregiving expenses be reduced, e.g. three days of daycare instead of five?
Work Adjacent Spend: Was I spending meaningful amounts (often silently) on things I needed for work without reimbursement, including my commute ($5 gas!), parking, work wardrobe, etc.?
Costs of Your Independent Contractor Business: The costs of being an independent contractor are nowhere near as high as running a multi-employee business, of course, but you may incur costs that you wouldn’t have if you were an employee. These could include (ordered by typical magnitude): professional liability insurance, fees if you form an LLC, ongoing professional licenses (if you’re a lawyer, CPA, etc.), ongoing skills training, web hosting for a personal website, etc. Many, many people keep these to a very small amount, but if you plan to explore any of these, factor in that you may need to budget accordingly.3
Change #3: Tax Adjustments
While we could nerd out on taxes, we’ll spare you (and ourselves!) a long deep dive here today.
…But there are a handful of things you should know that could make a meaningful impact to your take home pay – three likely in your favor, one potentially against:
🔴 Self-Employment Tax: TLDR: self-employed individuals are taxed at a higher rate than those that work for companies - what’s called self-employment tax. This goes to fund your social security and medicare – which your employer “splits with you” when employed (and you “split with yourself” when you’re self-employed).
🟢 Marginal Tax Rate: If you do give up some income to balance other life priorities, there’s a little good news: those final dollars you are giving up were likely being taxed at a higher rate.
🟢 QBI Tax Deduction: TLDR: …but self-employed individuals also may be eligible for a meaningful tax deduction called the Qualified Business Income deduction. This is intended to be an analogous tax break for small business owners when corporate taxes were cut, and includes sole proprietors.
🟢 Retirement Tax Savings: TLDR: The total limit on 401(K) contributions is higher for self-employed individuals, though still limited as a % of your income and with a bit of complexity to wade through.
Change #4: The Harder to Quantify
Most of the items in the three sections above are pretty easy to drop into a spreadsheet for your budget.
There are a handful of other considerations that, especially in the long-run, may matter meaningfully, but might be easier to weigh qualitatively rather than strictly in excel.
Benefits - Especially Healthcare & Disability Insurance: Am I able to access healthcare insurance through another family member (my spouse, my parents if I’m still under 26)? For disability insurance: do I want to purchase it directly?4 Since we’re grappling with heavy health topics: am I in a position for better physical and mental health long-term if I’m making more space for myself and my family and not juggling “all of the things”?
Long-Term Earnings Power: Work Pause Thrive really influenced my thinking here; One challenging element we grapple with in today’s job market is weighing, honestly, what impact a career break may, or may not, have on long-term career earnings potential; One of the principles that motivated starting Groundwork was a belief that keeping a foot in the door, what Work Pause Thrive author Lisen Stromberg refers to as “cruising” could meaningfully help alleviate the ability to maintain long-term optionality.
Part II: Actually Doing the Math for You
Since there’s a lot here, here’s our quick checklist on how to dive in and think through this for you:
Set Your Base Budget
☑ Build your own spreadsheet or choose one of the many online calculators that compare across scenarios
☑ Consider for you (and your family):
What are our hard to change living expenses?
Do we have non-negotiable savings goals (e.g. a 529 for our kids)?
What are our expenses that are more discretionary and could change to make space for my work-life balance priorities?
Compare Scenarios
☑ Compare two (or more) scenarios of what your future work could look like
☑ For each, adjust the parameters above that may change – both on incoming and outgoing cash flow
☑ Consider the differences, both now and long-term, in particular:
What’s the actual difference in take home pay per hour, net of all of the changes in scenarios?
Are we able to make the math work on our current expenses?
Does it make an actual difference “down the line”, and is it worth it for more balance in this season of my life?
Consider Potential Optimizations
☑ Especially if your spreadsheet doesn’t come back in a way you’re comfortable, come back to adjustments that might make the “math math”, including:
How does the answer change if I adjust the years I spend in non-full time work? (Especially long-term, a couple years of salary adjustment is very different than permanent changes)
Can we make more substantial caregiving and school cost adjustments with additional flexibility?
Can discretionary spend be meaningfully adjusted to create flexibility?
Could certain spending be delayed (e.g. a down payment on a home) until returning to a full-time salary?
Are there any areas where my new employer / clients could play a role (e.g. if on-going skills training is a meaningful expense in my model, could one of my clients agree to cover it?)
As we mentioned at the outset: moving from full-time to other work may be the right answer no matter what - and there are enough levers that you’ll find a way. But we hope for those looking to figure out where to start, this provides a framework to start exploring with more confidence. More to come on many of the nuances and details, and always reach out if there are other areas you’d like to see explored!
1 Setting your compensation structure and amounts is a complex topic. An upcoming resource will dive into best practices.
2 We’ll also do a deep dive on parental leave policies in an upcoming resource.
3 You guessed it: we’ll also deep dive into these topics soon.
4 You are statistically far more likely to use long-term disability coverage than life insurance, but people often think about life insurance more; Benefits are another area we plan to explore in a future resource deep dive.
