With one in five jobs being held by a contract employee, contractors and freelancers take up a large portion of the workforce. Many companies opt to hire freelancers and contractors as opposed to doing all work in-house. They’re great options for when you have a niche project that needs to be completed.
It can be difficult to know the difference between freelancer vs contractor. They may seem like the same thing but there are differences between the two.
This guide will go over what you need to know about an independent contractor vs freelancer. Read on for more information.
What Is a Freelancer?
Freelancers are individuals who are self-employed. They typically work on short-term projects with a variety of clients. One key difference between a freelancer and a full-time employee is that they don’t receive any benefits.
Many people become a freelancer because of the freedom. They’re able to work with more than one client at once and set their own hours.
With that said, they’re also able to set their own rates as well. Pricing can be by the hour or per project. Freelancers also work remotely but can meet up with clients in person for meetings.
When a freelancer starts a new project, it usually requires a signed contract. The contract will outline the tasks that will be performed and the predetermined fee.
Freelancers work in the skilled, service, or creative sector. Some of the industries where you’ll find freelancers include:
- Video Editing
- Computer programming
Since freelancers are classified as self-employed, they don’t have their taxes withheld by the company with who they’re doing business will. Paying income taxes is their responsibility.
As a business owner, it can be difficult to figure out how to classify your workers, especially when you have someone doing contract work. Knowing what tax forms to provide them with is essential. You can learn here how to do that.
What Is a Contractor?
A contractor also pays their taxes and sets their own hours as a freelancer does. They don’t receive any employee benefits from the clients they’re working with. Contractors are also able to set their own rates for whatever project they’re working on.
This is where the similarities between freelancers and contractors end. Contractors typically work with one client at a time, as opposed to multiple. The projects they undertake are usually large and could take weeks or longer to complete.
The contract between the contractor and their client typically spells out a certain period of engagement. You can find contractors in the following industries:
- Business consulting
- Creative industries
Businesses will choose to hire a contractor for a certain project or role because it tends to be more cost-efficient. They don’t have to provide them with benefits. They also know that the contractor’s focus will be solely on the project outlined in the contract.
Contractors may cost more per project or per hour than a full-time employee but it costs less than hiring someone on a permanent basis. They don’t have to cover retirement, insurance benefits, and payroll taxes.
Working with a contractor enables businesses to bring in a person that has specialized knowledge on that specific task. Businesses have the freedom to hire a specialist in an area that they need at that moment. They may not need that type of expertise all of the time, so it wouldn’t make sense for them to hire a permanent employee.
The Differences Between a Freelancer vs Contractor
Knowing in-depth the differences between a freelancer and a contractor is important if you’re planning on hiring one. Confusion can arise in regards to expectations and filing taxes. Differentiating between the two will help you avoid misclassification.
If your business wants to outsource a certain project, you could reach out to an external agency or vendor. The vendor will then assign a person to work on the project. That person would be a contractor.
Sometimes the process is more direct. A contractor can function as their own limited company. In that case, you’d be dealing with the contractor directly.
Freelancers always work on their own. When hiring freelancers, you’ll reach out to them directly. You won’t go through a vendor or agency.
Length of Contract
Like we talked about earlier, contractors are hired for longer periods of time. A contract could last up to a year, perhaps even longer.
The engagement between the contractor and their client is typically more intense. They usually devote their entire working day to that one client fur the duration of their contract.
Freelancer contracts are often shorter than that. Sometimes a freelancer is hired for a single day of work.
A freelancer may not even spend their entire working day working on that client’s project. They could spend a few hours working on it before moving to something else for another client. Because of that, a freelancer will juggle multiple clients at once.
Work Management Style
Companies tend to have more say over how the contractor they hired works. Depending upon the project, you may require the contractor to work in your office or use your facilities. They also may need to work certain hours of the day.
With a freelancer, a company can’t dictate how, where, and when a freelancer works. They set their own schedule and work wherever they’d like, so long as they send deliverables by the deadline. It’s also a freelancer’s responsibility to ensure they have the correct licenses and equipment to complete the job.
Decide If a Freelancer or Contractor Is Best for You
Knowing the differences between a freelancer vs contractor is key. A lot of it depends on the type of project you need assistance with and how long you expect it to take. Once you have the definitions of each type of employee down, you’ll be able to move forward with looking for someone.
For more information on financial advice for your business, keep reading our blog.
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