24 October 2024
Table of contents
Table of contents
A freelancer and a contractor are technically two separate things, but the terms are often used interchangeably. It’s easy to see why this happens because they both see a self-employed person providing work and services to another business. The terms do describe different ways of working though, so it’s useful to understand how they operate and get paid.
Freelancers sell their services on an ad hoc or temporary basis, as opposed to being a full-time, in-house employee within a business. They typically exchange their services for an hourly or daily rate, though they will sometimes quote a monthly retainer or project estimate. You might decide to become a freelancer whilst still working for another employer, so you can be flexible about the work you take on.
A contractor is a self-employed worker who operates independently and carries out their work on a project basis, with the rate of pay agreed in advance. Contractors often work exclusively for a client for a predetermined period of time, although it’s not uncommon for contracts to be extended.
The definitions of freelancers and contractors sound pretty similar on the surface. Whilst they occupy the same realm of being external suppliers, there are key differences in the way they operate, and how they’re paid.
Freelancers
Freelancers tend to work with multiple clients at a time.
They’re a free agent, and can choose to work with whoever they wish.
Usually operate independently, without others.
Contractors
A contractor will typically work for one client over a longer period of time, until the project is completed.
A contractor almost becomes an extension of the in-house team. Technically they can work for multiple clients simultaneously, though it’s more common for them to focus on one at a time.
Contract work can sometimes involve an entire team of people, depending on the scope of the project.
Historically, a contractor would often operate from the client’s workspace, but with the rise of remote working still gathering momentum this will likely become less common. Freelancers, on the other hand, normally work remotely, and can do so from anywhere in the world.
That said, freelancers are sometimes given the option of working on a client’s premises if a project is taking up most of their working hours, or if it involves collaboration.
While a freelancer will usually work in their own time and to their own schedule, a contractor will often work alongside their clients’ working hours. It’s why freelancing is normally considered to be more flexible than contract work.
Although these aren’t set in stone by any means, freelancers and contractors are typically associated with different kinds of industries. Contractors, for example, are popular in the IT sector or construction industry. Common examples of those working in a freelance capacity include:
Both freelancers and contractors are responsible for setting their own prices, sending their own invoices and chasing client payments. Where matters of money differ between the two is how they charge their clients. Freelancers normally charge by the hour, while contractors tend to work by cost of a project.
These definitions are a general rule though! Some people might need to work differently, and we all know how projects can evolve once a job starts.
The way that contractors and freelancers manage their accounts and pay tax depends on the legal structure of their business. What really matters is how they register their business, for example as a limited company or a sole trader. This is what dictates their obligations around reporting and paying tax, and any other responsibilities.
As both are external parties, the businesses using their services don’t normally need to do much more than account for their invoices in their bookkeeping. There might be IR35 considerations if a contractor provides their services through their own limited company or other third party intermediary.
Just when you thought things were all cleared up, along comes more terminology to throw a spanner in the works.
These are specialists with extensive experience in a particular field. A consultant will spend time advising on a specific area for development. They don’t usually carry out much, if any, of the work themselves, but rather steer a business and its employees in the right direction.
Locums are temporary external workers, usually brought in to cover staff absence, or to provide an additional pair of hands when workload is high. They’re most commonly associated with the medical industry but aren’t exclusive to this sector.
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