What is a Freelancer?

Freelancers are individuals who work independently. A freelancer does not exclusively work for a company but works on short-term projects and earns on a per-project basis. They can work full-time or part-time on a given project and are also called independent contractors.

Unlike full-time employees, freelancers work after signing a contract with the client. This contract also determines the fee, time, and other terms and conditions. Freelancers can charge either on a per-hour basis or a per-project basis.

Freelancers commonly work in areas that require creative skills. With that said, most freelancers work in service-based industries like web designing, art, marketing, editing, programming, photography, etc.

Advantages of Freelancers

As of 2022, the USA alone has recorded 70.4 million freelancers! Let’s explore some of the benefits of hiring freelancers. 

1. Excellent Work Quality

Freelancers are generally experts in their niche. They have experience working with clients with varying needs, which is another benefit. The flexibility and freedom they enjoy help boost productivity and eventually deliver high-quality work.  

2. Cost-effectiveness

Some companies may temporarily need an additional workforce or an expert hand in one specific project. In such cases, hiring an employee may go beyond the budget as it includes several hidden costs. On the other hand, most people freelance work from home. This helps reduce costs as they work remotely with their personal resources.

3. Access to a Larger Talent Pool 

Most freelancers are remote workers. So, when you hire freelancers, you get access to workers beyond your city, state or even country. Moreover, globally distributed freelancers also help give a newer perspective your in-house team needs help to think of. Further, it boosts diversity at work. 

4. Flexibility

Unlike full-time employees, freelancers do not have fixed work timings. This can benefit your employees when they’re running out of time and need extra assistance. Freelancers take up projects with short/long-term deadlines as they have experience dealing with multiple clients and can pull them off proficiently.

Disadvantages of Freelancers

Though hiring freelancers is beneficial in several aspects, there are some downsides to it, too. Here are some possible disadvantages of hiring freelancers for work:

1. Unpredictability

Hiring a freelancer for the first time can be risky as the work quality may be uncertain. Unforeseen circumstances like network interruptions, irregular work schedules, and undermanaged systems can delay work submission. 

2. Zero Supervision

Freelancers work remotely and on their own schedules. Even though they sign up with clients, there is usually zero supervision. Sometimes, a communication gap may arise, resulting in poor work quality.

3. Lack of Loyalty

Despite signing projects, some freelancers may lack the commitment the organization expects, which can result in unorganized workflow and delayed submissions.

Freelancers vs. Full-time employees

By definition, the difference between freelancers and full-time employees lies in the work conditions. The former is an independent contractor while the latter is employed permanently. Let’s discuss the other differences in detail below:

1. Working Hours

The most common difference between freelancers and full-time employees is the working hours. 

2. Permanency

Full-time employees work as in-house members with a minimum working period of 6 months or more and are eligible to be permanent workers. On the other hand, freelancers are temporary additions and have no guaranteed role in the organization.

3. Employment Benefits

As the name suggests, employee benefits apply only to full-time employees of an organization and not freelancers.

4. Payment & Taxes

Freelancers and full-time employees significantly differ in payment/salary and taxes. 

Freelancers and Taxes

As mentioned above, freelancers do not have their taxes withheld by the organization. Instead, the organization pays them the agreed fee without any deductions. However, freelancers are entitled to tax payments and are solely responsible for being tax-compliant. Some employers/payers also send out tax forms like 1099 to the IRS to report the freelancer’s income. 

According to the IRS, freelancers must pay the self-employment tax as an employer and an employee. This is because freelancers are categorized as business owners by the IRS. Thus, freelancers are subjected to a 15.3% self-employment tax. This includes the Social Security and Medicare taxes. 

The Social Security tax comprises 12.4% of the total self-employment tax and the rest 2.9% is for Medicare. However, the social security tax is applied only to the $160,200 earned in 1 year (for 2023). Apart from this, freelancers in the US who earn more than $400 must add the income to their annual tax return.

Types of Freelancers

The freelance market is highly categorized. Here are some common freelancer types:

1. Temporary Workers

Temporary workers have been recruited by businesses on a temporary or non-permanent basis for freelance work online. The tasks they work on can occasionally be short-lived or go on indefinitely. This typically occurs when huge organizations take on large-scale initiatives and employ a few temporary employees to support their existing workforce. 

2. Independent Contractors

Independent contractors take up work on a project-by-project basis. They represent the freelancer type that switches from one project to another depending on specific agreements between themselves and the clients to whom they provide services.

3. Diversified Workers

Diversified workers juggle between a part-time job at an organization and freelancing. They are renowned for utilizing various job methods to the fullest. They have the unusual ability to switch between many roles with practical time-management skills.

4. Business Owner

Freelancers evolve as freelance business owners after a brief period of expertise. They run their own small, independent businesses and hire numerous additional freelancers to help with the company's job.

Steps to Becoming a Freelancer

If you’re someone who wants to start earning as a freelancer, here’s a step-by-step guide that will help:

• Find a niche: Most employers choose freelancers because they’re experts in a specific niche. So, choose a prospective niche that aligns with your interests and expertise.
• Identify target audience: The next step is to define the target audience. Do this by creating filters like age, demographics, etc.
• Create a portfolio: A portfolio or website showcases your expertise and skills. It helps ideal clients/ employers trust your skills and hire you. 
• Decide your prices: Freelancers have different payment slabs like flat fee, per hour, per day, etc - Choose what works best for you.
• Pitch to your ideal client: Craft a proposal and start pitching to your ideal clients.

Common Freelancing Jobs

Freelancers are often in demand in service-based industries that require creative skill sets. Let’s have a look at the 10 most popular freelance jobs of 2023:

• Public Relations Manager
• Copywriter
• Data Analyst
• Digital Marketing Consultant
• Artificial Intelligence professional
• Social Media Manager
• Mobile App Developer
• Web Designer
• Virtual Assistant
• Graphic Designer

How to Pay Freelancers

Management and payment can be overwhelming if you’re hiring a freelancer for the first time. However, here’s a step-by-step guide to how to pay freelancers to make it easier for you:

1. Let the Freelancer Fill in a W-9 Form

As freelancers are considered independent contractors, it is essential to get the W-9 form filled. The W-9 form helps extract the independent contractor’s identifying information like Name, Taxpayer Identification Number, certifications (if any), etc.

2. Decide the Terms & Conditions

As mentioned earlier, freelancers have varying payment scales per hour, per project, etc. So it is always better to have the payment terms on the papers and sign a freelance contract. The terms may also include conditions about upfront payments, installments, and so on.

3. Tax Payment

Employers can only withhold tax amounts if the freelancer fails to provide their TIN in the W9 form. In such cases, employers can deduct the tax amount from the payment. Additionally, employers must fill out the 1099-NEC form if they have paid the freelancer more than $600/year. 

Filing the 1099 form is pretty simple. Ensure you fill both the copies (copy A and copy B)- one for the IRS and the other for the contractor.

Rights of Freelancers & Misclassification

As employers who hire freelancers, it is necessary to understand the rights of freelancers. Freelancers are entitled to timely payment for the work they have delivered. Though they cannot enjoy employee benefits of full-time employees, freelancers have the right to protection against discrimination at the workplace. 

Similarly, employers must be careful about classifying freelancers under their organization. Misclassifying employees can lead to severe penalties and lawsuits. This includes $50 per Form W-2 the business failed to submit for each such employee, a penalty of 3% of the wage, FICA tax that should be paid, etc.

The fact that hiring freelancers saves money puts most employers under a purposeful misclassification. Other reasons for misclassification include lack of knowledge and internal confusion.

So it is always better to tick the boxes before you classify someone as a freelancer for your organization. Here’s a quick checklist:

• They do not work just for your business.
• They work independently on a contract basis.
• They do not sign any permanent job contracts with the employer.

Hire Global Freelancers Compliantly with Skuad

Hiring freelancers can be a beneficial choice for your company’s growth as it offers several competitive advantages. However, the process can be extensive and requires in-depth analysis to avoid complications like misclassification, tax non-compliance, etc.

The easiest way to overcome these complications and hire and pay the most suitable freelancers, independent contractors, or employees is by partnering with Skuad as your Employer Of Record (EOR) platform. It ensures 100% compliance with local labor laws in over 160 countries. Ready to build your global team? Book a demo to speak to our experts. 

FAQs

1. What is the role of a freelancer?

Freelancers are independent contractors who deal with tasks assigned to them. Their role in the company’s growth is limited to the project. Unlike full-time employees, independent contractors are in charge of managing their business finances. They file taxes and handle their own systems.

2. Is a freelancer a type of employee?

Yes. Freelancers are categorized as self-employed and frequently collaborate on brief projects for various clients. They pay their own taxes and do not receive employee perks from their clients.