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Freelancer vs. Independent contractor: A comprehensive guide

Updated on :

February 28, 2024
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Freelancer vs. Independent contractor: A comprehensive guide

In the ever-evolving work landscape, where flexibility and specialization are valued now more than ever, two terms frequently take center stage: "freelancer" and "independent contractor." Despite being self-employed working arrangements, both are unique and bring their respective skills and talents to accomplish the task through different arrangements. 

In this article, we will learn about these roles in detail, and answer a few questions like ‘What is a freelancer?.’ The following sections will also help you determine the difference between an independent contractor and a freelancer. 

Who is a Freelancer?

A freelancer is an individual who offers their expertise, skills, or services to clients on a project-by-project basis without being tied to a single employer. Instead of traditional employment, they work independently, simultaneously taking on assignments from various clients or companies. 

While freelancers are also a kind of independent contractors, the term "freelancer" usually emphasizes the nature of their work.

So, how does freelancing work? Flexibility is the primary focus of freelancing, where professionals can decide their project preferences as well as work schedules and work remotely from anywhere. Their expertise often lies in writing, design, programming, marketing, and consulting. As freelancers often work with multiple clients simultaneously, they can enhance their income avenues and build a promising portfolio.

Also Read: How to Pay a Freelancer?

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Who is an Independent Contractor?

An independent contractor is a self-employed individual or entity that provides specific services or products to another party under a contractual arrangement. This arrangement is typically project-based and governed by a formal contract. In this role, people often operate as their own businesses, including sole proprietors, small companies, or even specialized service providers. They have a high level of autonomy over their work methods, schedules, and tools. 

Their payment is usually based on completed projects. Moreover, contractors are responsible for managing their taxes and business operations. Independent contractors may also work with multiple clients concurrently and are distinct from the hiring party's workforce. Unlike employees, they are not entitled to health insurance or paid leave benefits.

Independent Contractor Vs Freelancer 

Often used interchangeably, there are some differences between a freelancer and an independent contractor that set them apart. 

While both are self-employed individuals or entities that provide services to clients on a project basis, the primary difference lies in the terminology and the emphasis on the type of work. 

Independent contractors encompass a broader range of business arrangements beyond just freelancing services, while freelancers typically offer specialized skills to clients in various industries. Despite these differences, both roles share the common traits of autonomy, contract-based work, and self-responsibility.

Below is a table to summarize the differences between independent contractors and freelancers.

Aspect Independent Contractor Freelancer
Employment Type Their relationship with the client is more formal as a contract with terms of work guides it. Their relationship is relatively less formal and often project-based.
Autonomy Over Work They enjoy a moderate degree of control as they must work per the terms of the contract. They have more autonomy in their work.
Payment Often, they are paid by time or per project, whichever is mentioned in the contract. They are usually billed project-wise based on charges that are decided mutually.
Work Location They may need to work on-site. They typically work remotely.

The IRS groups independent contractors and freelancers for tax purposes. Yet, there is a significant difference between the two that goes beyond taxes.

Also Read: Misclassification of Independent Contractors

Things to Consider When Hiring Freelancers or Contractors

Hiring freelancers and independent contractors can offer unique advantages when expanding your workforce or seeking specialized expertise.

From project scope to communication methods and legal aspects, several crucial factors must be considered when bringing freelancers or contractors on board. Addressing these considerations can forge productive partnerships and prevent misclassification. Here is a table to help you decide when to hire freelancers and contractors.

Areas of distinction Freelancers Independent contractors
Duration & nature of the project Freelancers typically handle specific, task-based projects that require specialized skills. They are often hired for short-term assignments or projects with well-defined deliverables. For instance, a freelance graphic designer might be hired to create a company logo or design a brochure. Independent contractors may also work on short-term projects, but their scope can vary. They might undertake more complex and extensive projects that involve multiple tasks and phases. For instance, as an independent contractor, the graphic designer will work per the contract and might even handle the whole project.
Budget Freelancers are often chosen for projects with tighter budgets or tasks requiring expertise. Their pricing might be more affordable, making them suitable for smaller-scale projects. Due to their potential involvement in larger and more intricate projects independent contractors might command a higher fee. Their comprehensive services and ability to manage complex projects contribute to a comparatively higher budget allocation.
Control and autonomy Freelancers typically possess more autonomy in their work. They use their own tools, choose their methods, and manage their work schedules. Clients provide guidelines and expectations, but freelancers often have more leeway in execution. Independent contractors may also enjoy autonomy, but the level of control can be more negotiable based on the complexity of the project. The hiring party may have more involvement in setting project parameters and methods to ensure consistency.
Flexibility Freelancers are known for their flexibility. They often work with multiple clients simultaneously, adapting their schedules to meet various project deadlines. This flexibility can benefit clients who need quick turnarounds or temporary assistance. Independent contractors can also be flexible, but their involvement in more comprehensive projects might limit the number of clients they can simultaneously serve. In their case, flexibility may be determined by the demands of the ongoing project.

IRS Evaluation For Worker Classification

The Evaluation for Worker Classification is a crucial framework used by the Internal Revenue Service (IRS) in the United States to determine how an individual should be classified for tax purposes. This distinction has significant implications for both the hiring party and the worker regarding tax obligations, benefits, legal responsibilities, etc.

The evaluation primarily revolves around control – how much control the hiring party exerts over the work and the working relationship. The IRS's main factors include:

  • Behavioral control: Who controls your work schedule, location, and methods?
  • Financial control: Who manages your pay, expenses, and business-related aspects?
  • Relationship control: Does the employer offer benefits and define the employment duration?

Who Takes Care of What?

1. Taxes 

Freelancers are accountable for managing their self-employment and income tax liabilities. This takes more than just making a payment by the annual deadline. If this requirement is neglected, penalties may arise. One advantage of being classified as an independent contractor is the availability of tax deductions, including allowances for a home office and other pertinent business costs.

2. Benefits 

Freelancers and independent contractors arrange their own retirement plans and personal health insurance. They are not eligible for paid time off, including vacation, sick days, maternity leave, or holidays. As a result, they are responsible for handling their own HR duties and must be adept at time and financial management. 

3. Unemployment and Workers Compensation

If they get hurt at work or the employer unexpectedly lets them go, they can't seek help or payment from the unemployment office.

4. Finding More Work

Given that their life depends on keeping a steady flow of income, it is essential to think about future projects while working on current ones. A lack of upcoming assignments could result in failing to balance current commitments and seek out new chances. 

Freelancers and independent contractors often set short-term goals for finishing a project, getting paid, and moving on to the next engagement. While there are few exceptions, this is the primary justification for why such work arrangements necessitate a deft juggling act of attending to ongoing obligations while still keeping a vigilant eye on what lies ahead.

5. Schedules and Flexibility

Both of them enjoy the kind of flexible timetables that employees often wish for. Being a freelancer or an independent contractor means having nearly total control over the work schedule.

6. Financial Matters 

Freelancers and independent contractors are free to set their rates. They can decide whether to demand bigger payouts or accept lower ones. Both of them also have complete control over their fees. It's crucial to remember that not everyone may accept their terms.

7. Payday 

Should a client fail to provide payment, freelancers and independent contractors could find themselves in a precarious situation, short of resorting to legal action. Although a solid contract can offer some safeguards, it doesn't necessarily guarantee that they will receive the payment.

8. Feedback

Freelancers and contractors typically won't get feedback or a formal evaluation. Although they might discuss the state of the project with their boss, they shouldn't count on getting any helpful criticism or advice. It is assumed that they are knowledgeable and don't need instruction.

Who Should You Hire - Independent Contractor or Freelancer?

The choice between freelancer vs. independent contractor hinges on the nature of your business and the specifics of your project. 

Freelancers are a go-to for task-specific, specialized projects, especially when you want to delegate tasks to experts with minimal involvement. They work well for tight budgets and quick turnarounds, offering flexibility and autonomy. 

On the other hand, independent contractors excel in managing complex, multi-phase projects where you want more control and engagement. They could command a higher fee due to their ability to oversee comprehensive tasks. 

Choose based on how complex your project is, how much money you have, and how much you want to be a part of it.

Hire and Pay Your Global Team Easily With Skuad

It's essential for businesses to know the difference between a freelancer and an independent contractor to plan their workforce better. While both contribute valuable skills on a project basis, the nuances in their roles, scope, and employment relationships can impact decision-making.

Furthermore, as the way people work worldwide keeps changing, innovative platforms help companies build diverse teams with different kinds of employees working globally. 

Skuad is a unified EOR platform that helps you hire, onboard, and pay freelancers, independent contractors, and employees in over 160 countries without hassles. We also ensure that businesses remain compliant with diverse labor laws, tax requirements, and other regulations that vary significantly from one country to another.

Speak to our experts to help build your talent strategy and begin your global employment journey.  

FAQs

1. Is there a difference between freelance or self-employed?

Yes, there's a difference. While both "freelance" and "self-employed" refer to individuals not employed by a company, a freelancer works on specific projects for various clients. In contrast, "self-employed" is a broader term that includes individuals running their own businesses, which can encompass various professions. All freelancers are self-employed, but not all self-employed people are freelancers.

2. Is it possible to convert a contractor to an employee?

Yes, it is possible to convert a contractor to an employee, but the process involves legal and practical considerations that need to be carefully navigated. Converting a contractor to an employee requires adherence to employment laws, tax regulations, and proper communication with the individual involved. Remember that the conversion process can vary based on jurisdiction, local laws, and individual circumstances. It's essential to approach the conversion in a thoughtful and lawful manner, respecting the rights and expectations of the individual involved while aligning with employment regulations.

About the author

Sandeep Patel is a Content Marketing Manager and Strategist. Over the last five years, he has created and managed content for global brands and fintech startups. He is passionate about remote work and using tech for a better work-life balance.

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