Working from home in your pajamas is no longer the fantasy it used to be. According to a 2018 report by the Society for Human Resource Management, the number of businesses that offer telecommuting rose from 59 percent in 2014 to 70 percent in 2018. In addition, the U.S. Small Business Administration reports that as of 2017, 50 percent of all small businesses are home-based. While most people understand the expectations connected with a traditional in-office job, this shift in how and where Americans work is not without its own unique issues. Whether your job allows you to work from home occasionally, you operate a small business out of your home or you freelance or side hustle out of your home, you should be aware that this shift can come with some unexpected financial and professional costs.
Out-of-pocket costs: Working from home may help your bank account when it comes to the cost of commuting, work clothes and meals, but keeping a home office comes with its own expenses. You will need to upgrade and maintain your computer hardware and software, as well as any printers, monitors, routers, modems or other peripherals required for work. You may also need to spend more for faster internet to ensure you can access files and connect to video conferences. It might also be a good idea to pay for tech support to keep your systems up and running, as any downtime could cause you lost income.
You’ll also need to have an appropriate workspace, which may mean investing in office furniture, such as a desk, comfortable chair and filing cabinets. Not being in a business office means that you won’t have access to office supplies. That means pens, paper, paper clips, staplers and sticky notes will all come at your expense.
Increased insurance costs: Depending on the type of work you are doing out of your home, you may need to talk with your insurance agent to see if it will impact your homeowners or renters insurance policy. Standard homeowner policies may exclude or have gaps for business property and liability coverage. If your policy does cover business-related property, the coverage could be lower than the business replacement costs.
While you may be able to add business coverage to your homeowners policy, you should consider a policy designed for business if you have expensive or irreplaceable equipment, need protection from lawsuits or meet with clients in your home. Even if you only have basic equipment, you’ll want to make sure you have adequate coverage, so you can get your business up and running again as quickly as possible in case of fire or flood.
No separation between work and home life: Having a flexible work schedule is an appealing aspect of working from home. But working in a home office requires more discipline than working in an office. If you don’t set clear start and end times, you may find yourself working more hours than you would in an office. Since there is no physical separation, your work life and home life may blend together. Home distractions can lead you to be less productive, and work deadlines may pull you away from your home or family. This could lead to spending more work hours to complete your tasks, lowering your earnings per hour.
Career development costs: While telecommuting can reduce office politics and separate you from overbearing co-workers, not being present in the office can have a detrimental effect on your career. A 2014 Stanford University study found that working from home lowered promotion rates by 50 percent. Even if you are more productive at home, you could be passed over by someone your boss sees regularly. You not only miss out on career opportunities that come about from informal meetings, but also team-building opportunities that arise from group lunches or after-work activities. To combat this, consider working in-office occasionally and going on-site for big meetings.
Ways to offset hidden costs: While there are many hidden costs associated with a home office, there are also many opportunities to save. Many of the costs associated with having a home office are tax-deductible, from business-related purchases to insurance premiums. Work with a tax professional to make sure you are taking all your eligible tax deductions.
Working from home can mean that you are not fixed to one location. You can see significant savings by moving to a less expensive area. Moving to an area with a lower cost of living can increase you take-home pay and lower your bills through cheaper housing costs. A lower cost of living can also mean a lower cost of working, with reduced costs to maintain your home office infrastructure and lower insurance costs.