The difference between rates and wages is not always clear to newly self-employed people and their wage-earning clients.Both look similar on
surface; both are expressed in dollars and cents per hour. But they each represent something very different.
Wages are payment a worker receives for his labor.
Rates are payment a business receives for performing a serivce to a client. In addition to labor used in performing that service, rates must cover business's overhead.
Because of that, rates have to be higher than hourly wages earned by employees for comparable work.
Most newly self-employed workers are former employees. They are accustomed to receiving pay based on wages. Because they don't understand difference between 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 bills and enable you to earn a living.
Some of differences between a self-employed person's rates and an employee's wages are explained below.
WAGES
• If you are a wage earner, you are due an hourly wage just by being present and willing to work at a set time, for period of time demanded by your employer.
Your wage is payment for your labor.
• The employer supplies necessary equipment and supplies for you to do work. And, employer supplies your workplace.
• You enjoy all of legal and social protections due to employees such as Unemployment Insurance, and employer paid Worker's Compensation Insurance.
• Most full-time employees enjoy fringe benefits. These range from paid vacation and sick days, subsidized health insurance, retirement benefits, etc. to stock options and more to higher ranking employees at larger companies.
