When self-employed workers have access to income support while on leave, they gain much-needed flexibility. For some, paid leave benefits would look much like they do for employees—providing the wage replacement they need to be able to afford not to work for a period of time or to reduce their hours or days on an intermittent basis, adjusting the work they take on accordingly. For others, access to paid leave benefits to pay personal bills could free up business income to pay for a temporary replacement or additional assistance that would meet their business needs while still allowing them to take meaningful leave. Thus, an income-replacement approach temporarily disentangles self-employed workers’ personal income from their business income, opening up more options for how their businesses can accommodate periods in which they are not working.
The protections needed to take leave may look different for the self-employed than for traditional employees
The focus on cash income replacement reflects the role that money plays in enabling self-employed workers to take the leave they need. For workers with traditional jobs—those who are employees, rather than self-employed—meaningful paid leave must include the ability to leave work, including the protections needed to safely and reliably return, and the cash income support necessary to take that time.3 But the relationship between time and money looks different for self-employed workers than it does for traditional employees.
Theoretically, the self-employed should enjoy greater control over their own time than traditional employees, giving at least some self-employed people the ability to shape their schedules to accommodate their needs. However, for the self-employed, not working also means not getting paid: Each hour or day away from planned work requires either forgoing the corresponding income or making up the missed work. In this sense, the self-employed are at a distinct disadvantage. Most American employees have the backstop of at least some paid time away from work, however inadequate: 81 percent of private sector employees have at least some paid holidays, while 77 percent of private sector employees have at least some paid sick days.4 For the self-employed, however, there is no such baseline.
For short-term absences, their additional control over schedules may place self-employed workers in a stronger position than many traditional employees. For example, a self-employed person may be able to adjust their work hours to accommodate a visit to the dentist or take a child to the pediatrician, while many low-wage hourly employees would be faced with pressure to find coverage for such an absence or may even experience retaliation. These adjustments are not costless, but they are surmountable, and the increased time flexibility of self-employment may prove a worthwhile trade-off.
But longer periods away, such as for a serious illness or time needed to bond with a new child, can have more negative consequences. When time away is counted in weeks or months, and is accompanied by health or caregiving needs, simply rearranging or making up work becomes unrealistic, if not outright impossible. As a result, taking necessary time can require the self-employed to take a profound financial hit, even as bills for health care, diapers, rent, and food keep coming. Particularly for those who rely solely on income from self-employment, this can make the cost of taking needed leave too high. In short, for the self-employed, time costs money.
Robust, comprehensive paid leave benefits can ensure that money—and with it, irreplaceable time—is there for the self-employed at life’s most critical moments. Some leave needs may be expected or even hoped for, such as the birth of a child or a life-changing surgery. Others may be unforeseen or distressing, such as a sudden cancer diagnosis, a major accident, or a loved one’s terminal illness. All people—including the self-employed—deserve the paid leave they need to care for themselves and their families at these junctures.
How do the self-employed cope with the lack of paid leave?
While additional research is needed to understand the specific experiences of self-employed workers with paid leave, data from traditional employees’ experiences can shed light on likely outcomes. For example, employees often either do not take leave or cut a leave short because they cannot afford to take the amount of leave they need unpaid.9 Similarly, many self-employed people likely cut leaves short or forgo leaves altogether due to financial pressures.
For those who do take leave, the financial impact can be significant. Among employees who lost income due to taking leave, “limit[ing] spending” was the most commonly reported way to cover costs, followed by “us[ing] savings [they] had earmarked for this situation.” However, more than one-third—34 percent—of employees reported they “used savings earmarked for something else” to cover lost income while on leave, while others reported they “borrowed money” (31 percent) or “put off paying bills” (27 percent); 17 percent reported they “went on public assistance.”10 The self-employed likely face similar choices, including entering debt and raiding savings needed for other purposes, when taking needed time off from work.
Self-employment generally brings greater financial instability than traditional employment, with particular impacts on those with fewer resources. In lower- and moderate-income households, the full-time self-employed are more than twice as likely as full-time traditional employees to report difficulty managing expenses, as well as more than three times as likely to report high income volatility and nearly three times as likely to report unpredictable income volatility.11 This means that when a health or caregiving need requiring time away from work strikes, these workers may already be particularly vulnerable. Paid leave can help mitigate this instability, similar to the demonstrated impacts of access to health insurance and having at least $2,000 in savings.12
Paid leave can open access to entrepreneurship
Paid leave can help those who may want to be self-employed but currently are not able to be so. Without paid leave, when a health or caregiving need arises, self-employed people who can rely on preexisting wealth or other sources of support such as a partner’s income are in a very different position than those who cannot. Unpaid leave, in the form of simply stopping or reducing work and forgoing income, is significantly less detrimental and therefore more viable for those with greater resources. That difference in experience, in turn, shapes who can initially pursue self-employment, as well as who can sustain self-employment over the long term. In the context of ongoing racial and gender economic disparities,13 women and people of color are less likely to have the wealth or other resources to bear the risk of self-employment. As a result, paid leave could increase economic, racial, and gender equity in access to entrepreneurship.
Ensuring paid leave can help change the dynamics of entrepreneurship and wealth. According to the U.S. Small Business Administration (SBA), the median net worth of self-employed families is more than four times that of families that are not self-employed.14 But as the SBA notes, the balance of cause and effect is unclear, as it is not known whether self-employed individuals chose to be self-employed because they were wealthier to begin with or because they created their own wealth—or a combination of both.15 For those who are already wealthy, self-employment is less risky, because that wealth allows them to continue paying their bills during any temporary loss of income. Paid leave can create some of that same stability in the face of health or caregiving needs for all those who pursue self-employment and, in so doing, can create greater opportunities for entrepreneurship.
Put another way, lack of paid leave for the self-employed may contribute to job lock, especially for those with less access to wealth. As highlighted in previous Center for American Progress research, job lock occurs when workers are deterred from leaving a job due to resulting loss of benefits.16 Job lock is a barrier to entrepreneurship and a restriction on worker mobility.17 Combating this harmful phenomenon was a key goal of the Affordable Care Act in order to increase entrepreneurship, with particular impacts on key populations.18 By similar means, ensuring paid leave for all could make self-employment—and the ability to leave a bad job—viable for many for whom it is currently out of reach.
Paid leave supports those pushed into self-employment
Conversely, the reasons that lead many to choose—or that push many into—self-employment are often reasons that require paid leave. For example, one survey found that nearly half of all freelancers became self-employed because of personal needs that were incompatible with traditional employment, mostly health and caregiving needs.19 Family caregivers are 50 percent more likely to be self-employed than the general population.20 Similarly, as noted above, people with disabilities are more likely to be self-employed and more likely to need family and medical leave.21 This reality has only been made more salient by the rise of long COVID.22
Workers often pursue self-employment when traditional employment has failed them, often in ways that are deeply connected to lack of paid leave and the lack of respect for health and caregiving needs underlying that gap. It is therefore particularly important to ensure that self-employment does not recreate these inequities.
Today, other than a limited number of important but imperfect state programs, virtually the only road to paid leave in the United States is through traditional employment. For the self-employed, the time needed to recover from serious illness, to care for a loved one with cancer, or to bond with a new child comes at the cost of forgoing earnings. For too many, that cost is too high, pitting health and family needs against economic realities, with the self-employed stuck in the middle. Paid leave is the way out of these impossible choices, which are weighing down workers, families, and the economy. Federal and state investment in paid leave for the self-employed—such as through the FAMILY Act—would transform the experience of self-employment while expanding access to entrepreneurship.