Freelancer VS Contractor

If you plan to hire global talent for your expanding company, then you have to know and understand all sorts of employee. It should give you additional information and allow you to weigh up your revenue and expense sheets. For employers, therefore, the freelancer vs contractor proposition is something they should be thoroughly familiar with.

The freelance workforce now accounts for about 36 % of the total US labor force, based on a recent report. But the pick of your external staff is not restricted to freelancers alone. You can also hire independent contractors. But what are their differences?

If you’d like to have more details about this topic, please continue reading.

Freelance Worker

Freelancers are self-employed, non-permanent personnel providing professional skills to their customers. They tend to work with a number of companies at the same time, and take on as many projects as are within their schedules. Creative fields and media industries are the most common freelancers.

Contractor

Independent contractors are like freelancers, and generally work for the same client or on a long-term project, some fixed period and others continuing. Those self-employed contractors can choose to act as individuals, or they may prefer a turn at an agency. They handle their own social security and taxing. The staff is skilled and often own the organization. The IT, finance, health and construction sectors have the largest shares of independent contractors.

Difference between freelancer vs contractor

Freelancer vs contractor are both external employees who enjoy considerable professional and financial independence. But these differences also exist, and employers should be aware of them to avoid employee misclassification. To understand the freelance vs contract employee debate, we need only consider hiring, payment and work schedules.

Duration of Work

Working period can be seen as a criterion for differentiating between freelancer vs contractor. Freelancers work on short-term projects, either with or without deadlines. Therefore, contractors mostly work for clients on long-term projects with a fixed schedule.

Hiring

Generally, an agency employs freelance workers.  If you don’t have time to glance at the list of freelancers, this option is for you. Hiring agencies generally deal directly with independent contractors’ time frames, deliverables and fees. On the other hand, hiring a freelancer allows you to negotiate with the candidate over rates and deadlines.

Work schedule

As freelancers, they have fixed working hours and flexible work. Unfortunately, this schedule is not at all fixed. An employer will rarely get a steady stream of project updates. Some independent contractors do things in their own time, just like freelancers. However, most contractors have a set time every day for receiving news. Thus, freelancers and contractors can negotiate a suitable schedule for both sides at any time.

Payment for Job Done

Freelancers and contractors are paid either on a project basis or by the hour. But the biggest difference is how they get paid. Freelancers receive direct payment at an approved rate. The payment process is simple. When a project is completed, freelancers send an invoice and receive payment. On the other hand, a freelancer working for an agency is paid by that agency (not the client). Yet most contractors who are without agencies are paid directly by clients. One major difference between the contractor and. Contractor free-for-all So, you’re a freelancer? If employers hire them through an agency they don’t have to worry about getting paid.

Work contracts

Most freelancers don’t work under contract, so they can work for numerous clients at once. However, independent contractors enter into a formal agreement with the company they opt for. These contracts specify the project costs, time schedule, deliverables and payment terms. Sometimes even independent contractors sign legal contracts that will clearly state who owns what following completion of work or which parties bear responsibility for aspects thereof.

Work location

This is one of the most common points in the distinction between freelancer vs contractor. Freelancers can choose where they want to work. It is their home office or a particular location depending on the requirements of the project. Freelancers occasionally rent office space, but employers are not obliged to give them an office or compensation for its rental. In contrast, in the IT or construction fields independent contractors are sometimes given a specific work location by employers.

How about Gig Worker

The gig economy has boomed in the last few years. And if any worker has ever worked on their own as an independent contractor or a freelancer, they’ve been part of the mighty gig economy. Gig is just short-term work or project work. Uber drivers or Zomato delivery executives will give you a clearer idea of what gig workers are like.

Fundamentally, gig workers are short-term employees and can range from freelancers to contractors. They can provide their services on freelance marketplaces or apps.

Factors to Evaluate When Recruiting Freelancer vs Contractor

If you are wondering which option – freelancer vs contractor employees – is your best bet, these questions will help you decide:

• What kind of project would require the outsourcing of candidates?
• Should I hire the candidate directly or indirectly?
• How much can I afford to spend on the project?
• How much of the candidate will I need?
• But will I ever need candidates at particular hours of the day?
• And do the candidates have to work with office staff?
• Will I eventually make the candidate a permanent hire?

How Does the IRS Evaluate Employee Classification?

Properly categorizing workers is of great importance, because employee misclassification is a punishable offense. But it could cause major tax problems, getting you in trouble with the IRS.

The IRS presents three determining categories for employee classification, namely:

• Behavioral control
• Financial control, and
• Relationship type

Behavioral control

If the employer has direct control over the employee or can control his work, that is behavioral control. Control here refers to the professional’s instructions (when, where to work, what tools he or she should use, etc.).

Financial control

Financial control refers to an employer enjoying the right of control and decision-making over the organization’s business and finances. Higher monetary control is a greater probability that the worker will be an employee. For example, more financial control is seen when the tools to be used by the workers are still owned by the owner. Likewise, whether or not to reimburse any worker and if the worker may participate in other business ventures are also taken into account.

Relationship type

The type of relationship describes the way in which both sides, professional and employers, relate to each other. Businesses seldom provide benefits for contractors or freelancers in the form of vacation leaves, insurance and so on that they are accustomed to providing their employees. Just as employees each sign a formal employee agreement with the employer organization for an unlimited duration, contractors or freelancers work based on short-term project-based contracts.

Employee misclassification is when a company again erroneously classifies its own employees as freelancers/contractors, to avoid paying taxes and shirking benefits. Misclassification is serious which leads to heavy public revenue loss. The government attaches great importance to it. It is a wage law violation case which carries heavy penalties or fines.

Conclusion

We hope you now know more about freelancer vs contractor. Understanding their respective advantages and limitations can help shorten the hiring process, so you get to enjoy the best of both. But if you’re willing to outsource the headache of finding contractors and freelancers, then go with an experienced global EOR like FastLane Group. FastLane EOR will standardize your hire process and put you on track in employee on-boarding; it can also produce compliant contracts for you as well as take care of payroll matters. We would be glad to tell you what perks and benefits are permitted by local law that you should offer your employees.