By Kathryn Hauer, EA, CFP
Learn more about Kathryn on NerdWallet’s Ask an Advisor
When given the choice between a full-time job with regular pay and benefits and a temporary, part-time hourly job with no benefits, most of us would pick the former.
Some of those who would choose temporary work probably fall into the category of highly skilled entrepreneurs, in-demand freelancers like interior designers billing at $300 an hour, or those following creative ambitions, like writers or musicians. Countless other temporary workers would much prefer to find full-time positions with benefits, but can’t.
Negative financial impacts
And unfortunately, though temporary work is becoming more widespread in the U.S., it can have a negative impact on your finances. In many cases, temporary work can significantly undercut your financial prosperity in a number of ways, including:
Lack of stability
As an employee at a full-time job, you are almost 100% sure that you’ll have your job tomorrow and reasonably sure you will have it a year from now (of course, layoffs do happen). But temporary workers don’t know in the morning if they will have their job that afternoon. Managing cash flow and saving for retirement are hard enough for people with full-time income they can depend on. Those who can’t count on a regular paycheck have it even harder.
Although hiring temporary employees can be good for business owners, it’s rarely a good deal for the employee. As a full-time employee, you get paid for six or more holidays each year, and you generally get some number of vacation and sick days. As a temp, you get paid only when you work. Temporary workers also miss out on benefits usually available to full-time employees like a retirement plan and health and life insurance, often paid for in part or in full by the company.
Temporary workers earn, on average, 25% less than full-time workers. If some or all your working life is spent in temporary work, you will earn less in a lifetime than if you worked full time, even when accounting for fewer total number of hours worked.
REDUCED lifetime savings
Over the years, the result of temporary work is less money earned and saved. Temporary workers often have no retirement savings since they never met the full-time requirements for a company 401(k) and didn’t have extra funds to start an IRA. Additionally, your Social Security monthly retirement benefit will be lower because it is based on your lifetime earnings.
How to protect yourself
If you find yourself in a situation in which you must do temporary work, even though you would prefer a full-time position, there are steps you can take to protect yourself as much as possible from the negative financial consequences.
Safeguard essential documents
Scan, email and save important documents such as your birth certificate, marriage certificate, driver’s license, passport, military service record, Social Security card and other items that prove your identity and your entitlement to benefits. You may need some of these to verify your identity and citizenship when getting a new job, to set up automatic payroll deposits, to qualify for public assistance, to get tuition grants for training and for many other situations.
Email yourself the scanned copies, save the digital files on your computer, and also print physical copies that you can keep in a safe place, like a designated file cabinet or safe deposit box.
Making copies of these documents can help you if an original is lost. Though such documents are important for everyone, as a temporary worker you’ll also assure easy access to the proof you may need to get the benefits you’ve earned or to hire on for a new job.
When you can’t count on a concrete amount of money coming in each month, you may find it difficult to pay your bills and cover your living expenses. Find out if you are eligible for food stamps, welfare assistance, supplemental Social Security insurance, state or local assistance, faith-based help and other types of support that can help reduce financial strain.
You can also visit your local unemployment office. Even if you aren’t receiving unemployment benefits, the office can help you find your next temporary job or possibly a permanent, full-time job.
Look out for your own safety
Without health or disability insurance through your employer, an injury that prevents you from working could cause severe financial hardship. Yet statistics show that temporary workers have a greater risk of getting injured on the job than full-time employees. Temporary workers may not always get the same training that permanent workers do, so ask questions if you don’t understand a task you’ve been assigned. Follow instructions closely to keep yourself safe on the job.
Set up an IRA
Even if you don’t have a 401(k) retirement plan through your work, do your best to save a little extra money to invest in an IRA account that you can set up yourself. Money may be tight, but something is better than nothing. You can contribute a maximum of $5,500 in 2016 ($6,500 if you are age 50 or over).
MAINTAIN A CURRENT resume
Write and continually update your resume and work history. Keep current a list of the places, dates, supervisors and job duties of all the places you have worked. This will come in handy as you look for new opportunities or need to provide references.
In some cases, temporary work can lead to permanent work. Let your employer know that you are interested in a full-time job if one were to come up. Ask co-workers and bosses if they know of full-time jobs with other companies. People love to help; I still happily remember the times my connections have gotten another person a great new job.
Temporary work is a growing trend in the U.S., and it’s not unreasonable to think that you or a loved one may become a temporary worker in the future. If you find yourself in this situation, be aware that it can be costly for your financial picture, so you’ll want to take extra precautions. Be careful with your spending, take advantage of the help that may be available to you, and save as much as you can to prepare for your future. Keep your spirits up and continue searching for permanent work.