Financial planning for independent contractors and gig workers

Rising unemployment in the wake of the coronavirus pandemic combined with more and more people working from home has increased the size of what is referred to as the ‘gig economy’ which is made up of independent contractors, online platform workers, contract workers and on-call workers. Generally speaking, gig workers are heavily dependent on online platforms in order to generate an income and, as such, are required to be flexible and agile in their functioning. However, in the absence of permanent employment, gig workers and independent contractors have little in the way of employee protection and employee benefits, making financial planning an imperative for them. Here’s what to consider if you’re a gig worker.

Choose the right business entity

To ensure the smooth running of your gig or freelance work, consider the best entity for your business. Choosing the right entity will depend largely on the nature of your work, your expected earnings, your projected business growth, and plans for expansion and/or diversification. Each type of business entity has distinct advantages and disability in respect of ownership, personal risk, tax and administrative complexity, so seek advice if necessary.

Keep business and personal finances separate

Regardless of which business entity you choose, it is advisable from the outset to keep your personal and business finances separate by creating a firewall between the two. For your own personal protection, ensure that you pay yourself first and retain a good credit score as this will affect your ability to obtain financing or borrow money later on. Work hard towards drawing enough from your business account to cover your basic expenses and to ensure that all your financial obligations are met, and then plough the rest into growing your business, building up reserves and keeping yourself ahead of the game. Ensure that you stay on the right side of Sars by declaring all income and keeping up to date with your tax returns.

Business costs and overheads

With their high reliance on connectivity, gig workers and independent contractors will need to prioritise high quality wifi and data to ensure that they have uninterrupted access to the platforms they depend on, bearing in mind that South Africa’s data is still very expensive comparative to the rest of the world and these costs should be factored into their business plan. As such, remember to factor your business costs and overheads into your planning, keeping in mind that if you have multiple gigs or offerings, you may have a range of varying costs and overheads. Short-term insurance on vehicles and equipment required to generate an income should be prioritised, specifically when it comes to high-cost items such as hi-tech equipment, cameras, film equipment, vehicles, gaming devices, drones and other expensive items.


The traditional vertical structure of businesses is changing, with more and more companies choosing to retain core employees while outsourcing specialised functions to skilled contractors. According to the Southern African Freelancers’ Association, almost 80% of freelancers are female being predominantly based in Gauteng and the Western Cape, with over 60% of them holding postgraduate degrees. Freelancers cut expensive employee overheads and make an attractive option for employers who require a specific skill for a specific project. With this in mind, it is important for freelancers to get their pricing right and to ensure that they don’t short-sell themselves. Be cautious of charging by the hour – if you’re a specialist in your field, it may be more worthwhile charging per project or per deliverable.

Manage different income streams

For freelance workers who have multiple jobs or contracts in place, managing the various income streams can be complex especially where payment is erratic, or where companies make short or late payments. Freelance workers may find themselves overloaded with admin as they struggle to generate invoices, track payments and follow-up on late payments. Ideally, contract workers should make use of software that can help them manage this process so that it does not steal time that could be used to generate further income. Tight management of one’s bank account is also important to ensure that there remains sufficient funds for all debit orders to run timeously.

Emergency funding

Contract work can be financially rewarding while it lasts, but the very nature of short-term contracts and/or piece meal work is that income can fluctuate vastly from month-to-month depending on the demand for your skills. This makes having a robust emergency fund essential for long-term survival. While a person with a regular, stable income may be comfortable with an emergency fund of between three- and six-months’ worth of income, a freelance worker should ideally consider building a more sizeable buffer.

Protect your risk

As a freelancer or contract worker, you will not have the protection of group life cover through an employer which means that you will need to put a personal insurance policy in place to protect yourself and/or your loved ones. Depending on the nature of your work and the income you generate, you may find it difficult to qualify for an income protection benefit as underwriting criteria on these benefits are generally quite strict. As such, you may need to consider taking out lump sum disability to protect you in the event that you become permanently disabled and unable to generate an income. If you do not qualify for an income protection benefit, bear in mind a capital disability benefit does not pay out in the event that you are temporarily disabled, and you will need to make provision for such an eventuality through your emergency funding.


As a freelance contractor, it is important to make sure that you have watertight contracts in place to ensure that you have legal recourse in the event that a client fails to pay you. There are a number of law firms that provide affordable package deals for freelance and gig workers that assist them in setting up bespoke agreements, undertaking legal research, company registration, applying for licences, and providing ongoing legal support.

Save for retirement

Without the benefit of forced saving through a group retirement fund, independent contractors need to take responsibility for saving for their retirement. However, without a regular monthly income, this can be challenging. Unit trust-based retirement annuities offer investors full flexibility when it comes to making contributions, which means that gig workers can choose to make monthly, quarterly, annual or even ad hoc contributions into their RA. If you’re uncertain how much you can afford to put away in an RA, you may choose to park any surplus money in your access bond or a money market account until closer to the end of the financial year, at which point you can make a lump sum contribution towards your RA while benefiting from the tax deduction.

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