Why Boss Makes More Money Than Employee

I am sure this question has crossed the mind of any thinking person at least once in their working life. So, why employer makes more money than their employees do? I will give an answer to this question in this post as well as provide suggestions on how to increase your earnings at least 3 times while doing exactly the same job.

You pay for extras

Have you ever wondered what does employee package consists of? I see people get excited when they get extended packages with their new job that include health-cover, paid vacations and so on. Now, wait a second! Who is exactly going to pay for all that extra stuff? You, of course! Surprised? There is even more to it.

Each employee’s salary contains several parts, one of which includes taxes, which are extra to those you pay. The meaning is your employer has to pay extra tax for any employer he hires on top of other taxes he has to pay as a business owner. For example, my father has to pay up to 30% in taxes on income of a saleswoman who works in his shop. This money doesn’t come from his pocket either.

Business makes a profit

Finally, there is a business aspect to the deal. Because your boss doesn’t run a charitable organization and allows employees to just work for a living he or she also needs to make a profit on the investment which is the cost of having you as an employee. The general rule of thumb here is whilst you make your boss three times more money than he pays you he keeps your position in the company. A bit harsh? But that’s the reality of the corporate world.

What if you become self-employed?

Now what happens if you quit your job and find a way to do the same work while being self-employed? Well, just by taking this step you increased your earnings at least 3 fold. Say, if you previous salary was 25,000 per year as an employee you now worth 75,000 on your own. You receive this benefit by simply changing your mindset. You get to work the same hours, have the same schedule and perform exactly the same tasks.

Software developing company

Depending on your job this increase could be even more significant. Let me tell give you an example from the Computer Programmer perspective as it is close to my field of expertise. A computer programmer is hired by a certain company that develops software for sale. The owner of the company pays the programmer a fixed hourly rate, say 50 dollars per hour. By the time the product is finished, the computer programmer spent 100 hours and received pay check for 5000 dollars. Back to the company owner perspective – he gets to keep the rights on the product which entitles him to the distribution of as many copies of this product as he desires that will last him for a lifetime. Meaning, if the final product costs say 49.95 per copy he needs to find just 100 clients to cover his expenses (he paid 5000 to the programmer to write the code). The rest is pure profit… 200 clients brings 4995.95 dollars in profits, 1000 – 50,000 dollars which is 10 times more than he paid his programmer. If the programmer decided to keep the rights on the product and distribute it himself this money could be his!

Why being self-employed today is easier than before?

The answer to this question lies in the definition of value. In the next updates I will explain the value in more detail as well as tell about delivering of it. And, no, you don’t need to be a programmer to take advantage of this principle 🙂

Please post your arguments in the comments section below if you still believe being an employee is better than being your own boss and I will challenge them…