The distinction between employees, freelancers, and independent contractors is important, especially to business people.
The status of a person who works in your business or for your business will help you understand how you will pay them.
Employees are people in your business that you pay either hourly, salaried, or on commission. Employees are subject to overtime, and they get taxed directly from their income.
As a business, you must make sure you withhold both state and federal income taxes together with the Federal Insurance Contributions Act (FICA) in the US, or equivalent in your country.
An independent contractor is a person who works for your business. Unlike an employee, you do not withhold any tax which can either be federal or state, from the amount of money that you pay them.
When dealing with independent contractors, you are not supposed to make any payments for any FICA taxes.
A freelancer, just like an independent contractor, is a person who performs projects for work for different businesses which the freelancer has no direct affiliation.
A freelancer, unlike an employee, can offer his or her services to various clients and also manage to work for themselves rather than working as a company employee.
An independent contractor, unlike a freelancer, may not always be a freelancer—as an independent contractor, you may work for a particular company that contracts out to different clients and then offers you that work.
Outsourcing Vs. Freelancing
There is a form of a symbiotic relationship that exists between outsourcing and freelancing.
Outsourcing means seeking out for a service while typically freelancing means providing a specific service to clients of business people.
Freelancers can also be the recipients of work that has been outsourced by someone else, however, when we think of outsourcing work, what comes to mind is the hiring of independent contractors to help in cheap labor.
Companies outsource labor by contracting other companies situated in different countries where labor is cheap.
When we talk about ‘outsourcing’ what we mean is to hire an outside company to help handle a specific task that would have been done in-house.
Unlike the independent contractors, freelancers are people who get to be hired by business people or companies to do one particular job or help complete a specific project or work with the company for a short-term period.
Independent Contractors and Freelancers
The words, freelancers, and independent contractors may be used by different people interchangeably; however, what you need to know is that there is a difference between the two.
To better understand a freelancer, we can say that a freelancer is a person who can work for themselves and by themselves. Based on that statement, a freelancer will be a person who has no employees of their own.
There are different types of freelancers out there, depending on the kind of work environments. As a freelancer, you can either be a consultant or a freelance copywriting consultant.
A freelance consultant is the type of freelancer that will make some occasional onsite visits to their business clients and does not work at home. A freelance copywriting consultant is a person who works mostly at home in their offices.
In conclusion, it does not matter how you think of yourself, freelancer, or independent contractor, as long as you are comfortable with the job that you get and that job sustains you.