Employee vs. Self-Employed: Is One Really Better Than the Other?

These days, Malaysians have more than one option when it comes to their primary source of income. If previously, the typical route most people took was to apply to a company and rise through the ranks, now, some would rather be their own boss. Is one path to success better than the other? Which one suits your capabilities better? Here, learn about all the differences between an employee vs. a self-employed.

Are you thinking of making the switch? Maybe you’ve been employed since graduation and would like to chart a new path as a “master of your fate.” Or, have been self-employed for years and would like to dip your toes in an opportunity with more security. It’s vital to weigh your options first before deciding. Know the advantages and disadvantages of being an employee and a self-employed in Malaysia, and then you can choose which one aligns with your goals and capabilities better.

Types of Employment in Malaysia

At present, Malaysians fall under four types of employment, according to the Department of Statistics Malaysia (DOSM). These are:

1. Employees or those who work for a separate entity in return for specific compensation.
2. Self-employed or those who work for themselves.
3. Uncompensated family workers or those who work in a family business with no specific value in exchange.
4. Employers running businesses with one employee or more.

All four groups have been helping in boosting the country’s economy. But the latest data show the rise of the self-employed group. As of the second quarter of 2021, there are about 2.61 million self-employed individuals in the country already. This number makes up 17.2% of the total 15.21 million working adults. After the employed group, the self-employed is now the second largest in Malaysia.

What is a Self-Employed?

The DOSM defines the self-employed as “a person who operates his or her own farm, business, or trade without employing any paid workers assisting in the conduct of the enterprise.” Some examples include freelancers, traders, food stall owners, some lawyers, insurance agents, and delivery riders.

If you are self-employed, you are an independent worker. You do not work for any entity, whether a company, organisation, or the government. It’s possible that you own a business, but you mostly rely on yourself for its operations. To gain income, you market your product, either services or goods (sometimes both!), to clients. For this, you won’t get a salary in return. Instead, you are paid or compensated up-front or directly after the transaction.

The self-employment path is one of freedom. You are free to decide on most things by yourself. You are free to achieve your goals and ambitions however you want. You are free to charge your clients whatever amount you deem fit. You are free to set your own rules. But also, that freedom goes hand-in-hand with responsibilities and a unique set of obligations.

Kinds of self-employment

Self-employed individuals fall under any of the following types:

1. Business owners: They run their enterprise by themself or with a lean team. Business owners have their own schedules and don’t rely on monthly salaries.
2. Independent contractor: They work under short- or long-term contracts. Typically specialists in their chosen field, they offer a unique set of services to companies, organisations, or other individuals. Compensations and working hours are dependent on the contract.
3. Freelancers: They are also specialists in their chosen profession but don’t always work under a contract. They create their own schedule and can work remotely. Some examples are writers, vloggers, tutors, hair stylists, and graphic designers.
4. Temporary employees: They are employed for specific purposes within a certain time frame, whether for several days or a few hours. Like freelancers, they take charge of their schedules. They don’t have the same benefits as an employee but enjoy flexibility in many work aspects.

What is an Employee?

According to Malaysia’s Employment Act 1955, an employee is someone who works under a contract of service. This document includes most of the following details:

1. Job title or position
2. Responsibilities
3. Manager
4. Work address or office setup (hybrid or work-from-home)
5. Compensation
6. Benefits
7. Start date
8. Job duration
9. Working hours
10. Probationary period and evaluation
11. Leaves (sick, vacation, and other holidays)
12. Possible deductions
13. Termination clauses
14. Conflict of interest
15. Non-disclosure agreement

All these items make up an employee. The contract of service signifies that the company or organisation is willing to take up a person as an employee. In reverse, the employee agrees to all items listed in the document — ultimately leaving the employer with more control over the employee.

It’s an ideal setup for those looking for stability and security. Most jobs offer an employment projection, clearing a path for one’s future. The remuneration is also consistent, with the possibility of increases through time and based on performance.

Employee vs. Self-Employed: What’s the Difference?

Do you want more flexibility or stability? Both employment and self-employment have pros and cons that may appeal to different types of people. If you choose to be self-employed, you may have more control over your hours, but you might also need to work more than the right hours a day and even during weekends. If you’re an employee, you can expect a salary every month, but pay increases will always depend on other people. Here are some differences between an employee and the self-employed.

Taxes

Any Malaysian earning an annual income of more than RM34,000 needs to pay taxes. For employees, taxes are automatically deducted from their salary. The company will manage all these transactions for the employee. But for self-employed individuals, they have to process and file their taxes manually. This may mean paying a large sum to Lembaga Hasil Dalam Negeri Malaysia at some point in the year. You have to figure out how much, when, and how to go about your taxes.

Leaves

There is no such thing as leaves for the self-employed because they handle their own schedule. If they choose to take a whole month (or even a year!) off, no one will stop them. For an employee, breaks are based on a certain number of leaves that their company allows.

Health and other benefits

Unfortunately, the self-employed don't enjoy the same employee benefits of life, health, social, dental, and other insurance. However, they can always enrol themselves if they want to. But of course, they would have to pay for these out of their pockets.

Work setup

Employees need to be in the office and at their desks at a specific time. They typically need to come to work in professional attire or a uniform prescribed by the company. These are not considerations for the self-employed. They can work anywhere and anytime they want — at the beach or from their bed. They also don’t subscribe to a specific dress code — they can even be in their pyjamas while sending emails.

Job security

Most people believe that employees have more job security. To a certain extent, this is true. Employees have consistent work, responsibilities, and compensation to receive every month. But that doesn’t mean that they’re always safe under the company. Internal changes and other external factors may always challenge their standing. In the same way, the absence of clients and contracts can affect a self-employed professional’s source of income. Fortunately, when this happens, they can always pivot their services towards a different market to continue earning.

Follow this chart when weighing the advantages and disadvantages of being an employee or a self-employed:

One offers freedom partnered with vulnerability, while the other focuses on stability and rigidness. When deciding between becoming an employee vs. self-employed, make sure you consider your skill set, preferences, and future plans. Only you can decide which one is more suitable for your goals.

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