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Self employed: how to bridge the employee benefits gap

Employee Benefits Self Employed: Image shows a white bridge surrounded by leafy green trees.

Being self-employed offers many advantages, but you may miss out on benefits worth thousands of pounds compared to your traditionally employed counterparts. Our expert advisers explain how, with careful financial planning, you can bridge this gap.

As of March 2024, there were around 4.25 million self-employed workers in the United Kingdom, according to data from Statista, a figure that is steadily rising following a dip post-pandemic.

The average annual replacement cost of typical employee benefits is £9,586, according to calculations from Royal London. This means self-employed workers need to earn almost £28 extra per day to match the benefits of employed workers. While some benefits used in the calculation, such as carer’s leave, aren’t regular occurrences, others play an important role in financial stability.

So, what should self-employed workers focus on? In this blog, we’ll explore essential areas such as sick pay, life insurance, and pension contributions to help self-employed individuals safeguard their financial future and ensure stability.

What should employee benefits should self-employed workers focus on?

1. Sick pay

As a self-employed worker, being sick usually means having to take unpaid time off work and delaying projects you’re working on.

In contrast, most employees can benefit from Statutory Sick Pay of £116.75 per week if they’re too ill to work. This is paid for up to 28 weeks. In addition, some employers will offer sick pay as part of their benefits, which may be an employee’s full wage, or a portion of it, for a defined period.

It’s important for self-employed workers to have an emergency fund to cover short-term illnesses (more on this later). However, you also need to consider the impact a long-term illness could have. Financial protection can provide security when you need it most.

When thinking about illnesses, there are two main options to consider.

  • Income protection: This would pay a regular income, usually a portion of your typical income, if you became too ill to work. It would provide an income until the policy ends, you return to work, or you retire. There is usually a deferred period, 12 weeks for instance, before the policy starts paying out, so it’s not suitable for short-term illnesses.
  • Critical illness cover: This type of policy pays a lump sum on the diagnosis of certain illnesses, such as cancer or a stroke. It can give you more freedom to take time off work and adjust or pay off large outgoings, such as your mortgage, but will not provide a regular income.


The cost of financial protection products will depend on your health and lifestyle. If you think you could benefit from such products or would like to discuss them further, please give us a call.

In addition to sick pay, some employees will also benefit from health insurance through their employer. While you can rely on the NHS, health insurance could enable you to see a medical professional quicker and potentially have access to a wider range of treatments. It is possible to take out private health insurance, but, again, the cost would depend on your health and lifestyle, as well as the level of cover.

2. Death in service or life insurance

“Death in service” cover is a type of life insurance policy provided by your employer that would pay out a lump sum to your loved ones should you pass away. While not all employers offer a death in service benefit, some do, and it can provide peace of mind and ensure your family is financially secure should the worst happen.

For self-employed workers with loved ones that rely on them financially, it is possible to take out life insurance that would provide the same level of security. You can select the level of cover you want, for example, so that it matches your mortgage. Again, premiums can vary, and your health will have an impact.

Life Assurance and Income Protection plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.

3.  Pension contributions

Most employed workers are now automatically enrolled in a workplace pension, helping them save towards retirement. Employers must also contribute a minimum of 3% of an employee’s pensionable earnings, boosting their savings. Some employers will contribute more than the minimum amount.

While self-employed workers can open and contribute to a pension, they miss out on the employer’s contributions. For someone earning a salary of £30,000 with an employer matching their 5% contributions, this benefit is estimated to be worth £1,500.

While not benefiting from employer contributions, it’s still important for self-employed workers to have a pension. Your contributions will benefit from tax relief and be invested. The most important thing is to understand what retirement lifestyle you want and how a pension can help you make it a reality. A financial plan can mean your contributions are in line with your plans.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investment (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

4. An emergency fund

Another key consideration for self-employed workers is having an emergency fund in place. While employees may benefit from things like bereavement leave, self-employed workers would need to take time off unpaid. Having a readily accessible fund means that you can take time off if needed without having to worry about how you’ll pay for essential outgoings.

Ideally, you should have three to six months’ of outgoings in an emergency fund to provide financial stability when you need it most. The money should be accessible so it can be used when the unexpected occurs. Often, a cash account is advisable for an emergency fund for this reason.

In 2021, reports of pension scams increased 45%, and fraudsters stole over £2m from people in the UK in just 6 months (Action Fraud, 2021; FCA, 2021). This is likely to be a significant underestimate of financial losses, considering the FCA estimates that less than 1 in 5 scams are reported.

If you think you might have already been targeted and you’ve agreed to transfer your pension, take action fast:

  • Contact your pension provider immediately – they may be able to stop the transfer if it has not already gone through.
  • You should also contact Action Fraud on 0300 123 2040 and report the scam. 

A financial plan tailored to you

A financial plan can help make sure everything is on track. From short-term saving goals so you can take a holiday to long-term retirement planning, a financial plan can help you achieve aspirations and balance competing priorities.

Please get in touch if you’re self-employed and would like to discuss how a financial plan can help you reach life goals.

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