December 17, 2020
February 8, 2021
Guest blog by Petra Odak
Companies have various choices to make as they consider their next hire, enabling them to choose the right people for their projects. Freelancers and contractors have emerged as viable alternatives to doing everything in-house, with many businesses now relying on them for niche and recurring tasks as well as ad-hoc assignments.
This guide will walk you through the three main types of workers: freelancers, contractors, and employees. We will look at how they differ from each other and which one you should choose.
Let’s dive in.
Freelancers are self-employed people who often work on short-term projects with various clients. They receive no employee benefits from their clients and pay their own taxes. A defining feature of freelancers – and the reason the path is attractive to many workers – is their ability to set their own hours and work with more than one client simultaneously.
They typically work remotely, though may occasionally meet with clients in person or visit the office for meetings.
According to a study by the Freelancers Union and Upwork, about 35% of Americans were freelancing as of last year. The image above is a snapshot of the study’s findings, which estimated that freelancing income touched nearly $1 trillion last year.
Much like freelancers, contractors also set their own hours and pay their own taxes. They also receive no employee benefits from their clients and have control over their rates for any given project. However, this is where the similarities end.
Their projects are typically large and can last weeks, months, or longer. Their contract usually defines a specific period of engagement. They are most commonly found in construction and IT, business consulting, and creative industries.
Employees work for a single employer permanently and are paid fixed remuneration such as an hourly rate or annual salary. They might work in the office or be a part of a remote team hired and are hired to fill a designated role as opposed to working on a single project.
The employer provides benefits (such as vacation time, healthcare, and pension plans) and is also responsible for taxes and contributions. Employees typically have a fixed that determines their work hours, role, and the terms of their employment.
Since they are a permanent part of the company, employees are usually required to serve a notice period before leaving the company. They also enjoy more job security than freelancers or contractors.
Now that we know what freelancers, contractors, and employees are, let’s look at how these categories of workers differ. Here are a few of the critical areas of difference: