“This article is written by Jasmine Madaan, from Vivekananda Institute of Professional Studies (VIPS). This is an article drawing various advantages and disadvantages of employees and entrepreneurs.”
Table of Contents
Introduction
The discussion on this topic can often be irresolute and end with conflicting views. Being an employee or an entrepreneur is a personal choice. One might feel so exhilarated about being an entrepreneur but it is necessary to deeply analyze one’s own capabilities, financial and legal implications, etc for starting a business. Before drawing a conclusion, some might want to take a neutral approach. The article has attempted to list various factors that can either add to their advantage or disadvantage.
Differentiating Factors
The factors that are relevant in differentiating between an employee and an entrepreneur are listed below:
Income
One of the major differences between employment and entrepreneurship is that an employee is bound to receive a salary every month/week as per the employment agreement, whereas that is not the case for an entrepreneur. Various laws in India protect the right of the employee to receive a salary:
The Payment of Wages Act, 1936 makes it obligatory on the part of the employers to provide a salary to the employees on time. Pay is capped based on an individual’s position in the organization. An employer cannot discriminate based on sex, race, creed, caste, etc. while paying the salary. The Indian Constitution’s Article 39(d) makes it necessary to not make any form of discrimination on the basis of gender while paying the salary, the Equal Remuneration Act provides for the same rule. The regular supply of cash in terms of guaranteed income provides security to the employee. Along with the income, employees are provided with health insurance, company shares, etc.
An entrepreneur does not have such a guarantee, but it is seen in recent times that entrepreneurs have been paying themselves full-time salaries. It is always a baffling question for an entrepreneur how much he/she should pay himself/herself. If the business undergoes a downturn, then the employees still get the income, whereas an entrepreneur might have to cut his/her own salary to compensate for the loss. During the inception of a business, the uncertainty level is extremely high, and it becomes highly imperative to first cover the bills and payments of the business and if left with sufficient amounts then pay him/herself.
Some might argue that during the COVID-19 lockdown phase, various employees are unpaid and also being laid off, but it is noteworthy that this is a rare circumstance and a temporary thing for which the government is also taking action. To conclude, the level of financial security is comparatively better for an employee even during an act of god or some rare circumstance. However, this is also true that in this competitive arena, only the fittest survive, therefore, it is necessary for an employee to be of high importance to the organization to secure his/her job during such times.
Investment
When an entrepreneur establishes a business, there is a requirement for huge funding. One can look for equity funding which includes angel investors (investors providing capital for startups or small business ventures without asking for an equity stake or a say in management) or venture capitalists (private equity investors providing capital to companies that exhibit ‘high growth potential’ in return for an equity stake), self-financing, or debt financing (taking loans). One also has to spend on obtaining a workplace, hiring employees, technical experts, legal experts, etc. One has to obtain licenses and registration before starting a business:
- Employees’ Provident Fund Organization,
- Import Export Code(IEC) if there is import or export,
- Value-Added Tax(VAT) if there is a sale of goods,
- Shop and Establishment License required for establishing any commercial setup, and more.
The initial investment is huge and raises the stakes, especially if an individual is self-financing, one needs to ensure that the business prospers after obtaining it.
An employee does not have to make any such investment for reducing the burden. However, for a higher position in a firm; for example, to become a senior partner, one might be required to pay a certain amount (remember Harvey Specter’s millions dollar cheque for name partnership in the series ‘Suits’).
Legal Knowledge
An entrepreneur should have a vast knowledge of various kinds of laws. An entrepreneur should proceed only after finalizing a particular business type which are sole proprietorship, partnership, public limited, etc.
In case of a partnership, The Partnership Act, 1932 will apply wherein the registration is optional, minimum two people are required; a Limited Liability Company (LLP) must be registered under The LLP Act, 2008 with the Ministry of Corporate Affairs; and for a private company, one needs to get it registered under The Companies Act, 2013 with the Ministry of Corporate Affairs. Except in case of a sole proprietorship, under all the above-mentioned business types, one has to pay tax on the profit earned as per the Income Tax Act, 1961 under which different slabs are mentioned along with applicable cess and surcharge.
An entrepreneur can list his/her business on the stock exchange for which Securities law must be acknowledged. An entrepreneur should also be aware of Information Technology laws, Intellectual property laws, Labour laws, etc.
If an entrepreneur is not aware of these and other laws then it can be a major disadvantage for his/her’s business whereas, if an employee is not aware of all these laws, it would not cause any trouble.
However, it is very important for both entrepreneurs and employees to be aware of Cyber laws, Data Privacy laws (Section 43A and Section 72A of The Information Technology Act, 2000 as they provide the right to compensation and punishment, respectively if protected data is disclosed and The Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011) as it is important to protect the confidential clients’ information.
An entrepreneur should be aware of various schemes available to benefit, for example- Scheme for Facilitating Startups Intellectual Property Protection (SIPP) (a scheme which provides protection of ‘Trademark, Patents and Designs of interested and innovative startups’).
A Professor, from Harvard Business School, stated in an interview that entrepreneurs often fail due to the legal flops arising from a wrong business plan due to hiring wrong lawyers and lack of knowledge on their part.
Work-life balance
An employee usually has fixed working days and working hours, the details of which are mentioned in a job agreement, duly signed by the employee before joining. Even though in certain professions they are stretched as per the work requirement but still the basic structure remains the same. Very often employees are paid for their extra working hours, often termed as ‘overtime’. Some employees often have an agreement to receive extra hours off to compensate for the overtime. In comparison to entrepreneurs, an employee can have a better work-life balance.
Business often requires hours of work to get off the ground and operate successfully. Many entrepreneurs often get tangled in excess work and end up having a negative impact on their personal lives. Especially at the beginning of a business, the stakes are so high as the company is required to fight competitors, establish a brand name and a customer base, etc. Sometimes even the family members are involved in the work due to high pressure. Therefore, it is a tough task for an entrepreneur to maintain a stable work-life balance.
However, once the business is stabilized, an entrepreneur has a more flexible work schedule and can mould it as per his requirements.
Risk
An employee never has a 100% job security in spite of that he/she is financially secured to a certain extent. The fixed amount of salary is assured. The risk factor is extremely high, the risk of failure, the risk of bankruptcy, financial risk, growth risk, or of any other sort. Entrepreneurs do not even receive regular paychecks for their work. In case the business is not able to succeed the entrepreneur has to bear the consequences.
A 2016 report by the IBM Institute for Business Value and Oxford Economics revealed that in India, within the first five years 90 per cent of the startups failed and the main reason was found to be ‘lack of innovation’. The statistics show the level of risk one steps into while launching a startup.
However, a good plan with an appropriate execution can do wonders. After all, an entrepreneur is all about taking risks and converting plans into actions.
Employees do not have to face many risks except during a crisis either within the company or industry or country. For instance, during the current lockdown due to COVID-19 employees are facing a high risk of either not being paid or losing their jobs.
Benefits available
Leaves
There are two stages- one where the entrepreneur is starting off the business and the other when it has been established. In the first case, it is next to impossible to take a leave as the business is at the most sensitive stage and extra input is required at that time. Whereas in the latter stage an entrepreneur has a more flexible working schedule. He/she adjusts the working schedule with other work in a manner one wants. However, it is difficult for an entrepreneur to take leaves as they are usually more self-dependent and have no specific number of leaves unless they are also working as an employee at their company.
However, in the case of an employee, they have the right to take leaves. They can be of the following types:
- Sick leave- in case of some medical sickness this kind of leave is taken after informing the HR or manager.
- Casual leave- it is usually taken for some urgent work
- Paid leave- there are a fixed number of leaves in which one gets the salary as well
- Other leave- these are non-paid leaves, the deduction amount is usually mentioned in the job agreement.
However, the number of leaves are fixed in number.
Gratuity
Employees are entitled to receive gratuity amounts after they retire or leave the organization under the Payment of Gratuity Act, 1972 if an employee has served for a minimum period of 5 years in that particular company.
An entrepreneur has no such right. Employees also receive provident fund under Employees’ Provident Funds & Miscellaneous Provisions Act, 1952.
Responsibility
With higher positions come higher responsibilities. It is easier to do the work rather than getting it done by others. An entrepreneur has to work himself and also keep a check on the entire organization’s work. Overlooking the legal department, technological department, accounting department, human resources, etc. can often be a daunting task for some. An entrepreneur is responsible not just for his/her work rather, for the entire organization’s work.
An employee is often assigned a task and is responsible to finish it on a directed time. The responsibility is lesser in comparison to an entrepreneur’s responsibility.
Career growth Exposure
What an individual might earn in a month, an entrepreneur might earn in a week, or a day, or an hour, however, that differs from business to business and also from different individuals. An employee might have certain financial security but the earning potential is reduced as one gets just the basic pay and bonus. The promotions in a firm are not regular and often not increasing the pay much. One might get stuck while doing the best work and simultaneously earning just a fixed amount and changing jobs continuously can affect your career. Whereas, if a business is well-established and flourishing then for an entrepreneur in terms of money, the sky is the limit.
Employees lack not just in earning potential but also in personal development. It becomes difficult for an ambitious employee to survive in a less progressive condition. An entrepreneur represents his business which helps him/her in building the links, connections, grabbing opportunities, etc.
Mental Health
With increasing awareness about mental health, one needs to be mentally strong enough to tackle every situation with ease. An entrepreneur is responsible for all the acts of the firm in every aspect. An entrepreneur has to not just focus on his/her work and rather one has to manage and keep a check on each and every employees’ work. As the company grows, the burden also grows. One might find it difficult to tackle problems and that is where a lot of people give up. Poor work-life balance leads to stress and mental health issues.
An employee also feels stressed as the workload can cross the roof and bury one in work. The continuous orders and control of superiors can often lead to stress and mental health issues. In case of not being able to complete a task on time, it can lead one into a stressful condition sometimes even in the fear of losing a job.
Both can undergo mental health issues, it depends on an individual’s ability to deal and cope up with stress.
Controlling power / Independency
An employee is directed by the superior and has to follow it. He/she usually does not have much power to control things. Often superiors imbibe juniors with powers but still, the main authority remains the top management.
Whereas, an entrepreneur does not have to take commands and rather gives commands. He/she decides what is to be done, how is it to be done, etc. after consulting experts in the organization. In cases where an entrepreneur appoints somebody else as the managing director still some of the controlling power lies in his/her hand. An entrepreneur can make things work his way, adjust timings, leaves, work, etc.
Exit Barriers
One of the main advantages an entrepreneur has is that there is no barrier or age limitation. An entrepreneur can continue to work for as long as he/she desires as the control is in his/her hands. Whereas, an employee has to retire based on the retirement age criteria that is in most cases 60 years, however, it can vary depending on the job. An employee can end his/her tenure with compliance with the labour contract that is signed by the employee and employer. For instance, an employee often has to serve a notice period before leaving an organization whereas an entrepreneur might not have to comply with such restrictions. However, every organization has its own rules on the labour contract.
Economic Situation
It is very important to first analyze the market industry, the economy of the country, the economic condition of the world, etc. For instance, at present with the crisis of COVID-19, the world economy is facing a downturn including India. The stock markets (from India to almost the entire world) have fallen drastically. India was already undergoing a stressed phase as the GDP growth rate for the previous years had already been consistently declining. India’s economic growth for the first quarter of 2019-20 was just 5% which is the slowest since March 2013.
Therefore, an entrepreneur needs to weigh the pros and cons and must enter the market at the prompt time.
If a person is looking for a job during a recession then it can be a problem for him/her to find one. However, for an employee, the economic situation does not have much effect except when there is uncertainty about his/her job or salary or any other benefits like bonus, dearness allowance, etc.
Conclusion
What the future holds cannot be predicted with certainty but one can always analyze the situation to compensate for the roots in decision making. To conclude success is decided by an individual’s hard work, dedication, and foresight for the right opportunities. Before taking a final decision it is important to undergo a self and market analysis and then decide. If you are a risk-taker, can stay calm in difficult situations, have extremely high confidence and leadership quality, and a thorough knowledge of analyzing the present and future scenarios then entrepreneurship is the one for you and the same skills can also help an individual to be an excellent employee. If you like to take the charge, handle the work the way you want then entrepreneurship is more suitable. As for all its advantages, it also has pitfalls.
References
- https://www.theladders.com/career-advice/18-pros-and-cons-of-being-an-employee-vs-being-an-entrepreneur
- https://www.red-gate.com/simple-talk/opinion/editorials/entrepreneurship-vs-employment-which-is-the-best/
- https://www.entrepreneur.com/article/252192
- https://razorpay.com/blog/legal-basics-that-every-indian-startup-should-know/
- https://www.inc.com/michael-graber/why-do-you-work-being-an-entrepreneur-vs-an-employ.html
- https://yourstory.com/2016/04/business-india-compliance-requirements
- https://www.instamojo.com/blog/small-business-laws-india-startup-knowledge/
- https://www.cxovoice.com/important-indian-business-laws-every-startup-entrepreneur-should-follow/
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