Freelancer vs. Independent Contractor: What’s the Difference?

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The gig economy has been on a steady rise, with an estimated 76.4 million people in the U.S. now doing some type of freelancing. Freelancing contributed an estimated $1.27 trillion in annual earnings to the U.S. economy in 2023 and shows no sign of slowing down.

Freelance and independent contract work is alluring to employees because of the associated freedom and flexibility. Freelancers can set their own hours, be their own boss, and even tack it onto an existing full-time job to make a side income.

For employers, the gig economy offers a budget-friendly way to serve niche business needs from accounting to marketing and beyond without the investments and responsibilities that come with full-time employees.

With so many people following this alternative career path (and so many employers warming up to working with them), it’s highly likely that you’ve collaborated or hired at least one person who doesn’t fit the mold of the standard 9-to-5 full-time employee. But what is a freelancer? What is an independent contractor? What’s the difference between them and which one is the best fit for your needs?

Read on to learn more about freelancers vs. independent contractors and how to determine which one to leverage for your next project.

What is a Freelancer?

A freelancer is a self-employed professional rather than being employed by a company. They set their own hours and rates, send their own invoices, and typically work with multiple clients simultaneously. Freelancers are responsible for a number of expenses that typical full-time employees are not responsible for, like employment taxes, business taxes, and the full cost of healthcare.

‘Freelance’ is a vast umbrella term that covers many different types of work arrangements. A freelancer may work on an hourly, monthly, project, or contract basis. They may consult for a set period of time or for a predetermined scope of work, or they may work with clients on an ongoing basis.

The IRS classifies freelance workers as 1099 employees. In contrast to full-time or part-time employees of a company, who receive a W-2, freelance workers receive a 1099 form from each client. The 1099 reports their earnings and indicates that the employer is not responsible for paying FICA taxes or withholding income tax on that worker’s behalf.

While we typically think of freelancers as working from home on their computers—and many do—all sorts of professionals, including doctors, lawyers, dentists, and real estate agents, can be 1099 workers.

What is an Independent Contractor?

In the eyes of the IRS, a freelancer and an independent contractor—also called a 1099 contractor—are the same thing. As the IRS defines it, “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

So, while an employer can direct every aspect of how a W2 employee does their job, from the hours they work to where the work is done, they can only direct the final deliverable in exchange for payment with an independent contractor. This critical requirement typically limits independent contractors’ use in most scenarios. As such, while the term “contractor” is commonly used in staffing scenarios, the vast majority of the time, the individual is a W2 employee of the staffing firm (at 4 Corner, our client requirements rarely call for an independent contractor, vs. a W2 employee who is on our payroll during the contract period).

Like a freelancer, an independent contractor is responsible for covering their own federal income taxes and self-employment taxes. Self-employment taxes include the requisite contributions to Social Security and Medicare that are typically withheld by the employer on a standard full-time paycheck.

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The Difference Between a Freelancer and an Independent Contractor

So, you want to hire a 1099 worker to fill gaps in your business. Should you hire a freelancer or an independent contractor? The difference between a freelancer and an independent contractor is less about the technicalities and more about the terminology.

In other words, ‘freelancer’ and ‘independent contractor’ mean the same thing from an employment and tax perspective. In practical use, though, people often use one term over the other depending on the type of worker they’re describing. It’s kind of like saying ‘raining’ vs. ‘drizzling.’ Though both convey precipitation, most people use the terms to describe slightly different types of showers.

Here are some of the key differences between freelancers and independent contractors.

1. Number of clients

Freelancers are more likely to work on many different projects simultaneously, often for multiple clients. They balance their workload as they see fit and bill according to the work that’s done. On the other hand, it’s not uncommon for independent contractors to work with just one client at a time, getting paid for a fixed period of time (i.e., six months) or a specified scope of work (i.e., the launch of a product).

2. Scope of work

Independent contractors typically work on a very closely defined scope of work for a set time frame. They’re often brought in to tackle one specific business challenge or serve a particular need within a project. A freelancer’s work is more fluid. It’s common for a freelancer to tackle projects on an ad-hoc basis, with work assigned as needed.

3. Legal agreements

As the term ‘contractor’ suggests, a contract is signed by both parties before an independent contractor’s work gets underway. While the employer has fewer rights to control how the work is done, they can make lots of other stipulations in the contract. For example, an employer might dictate that certain information must be kept confidential or that the 1099 contractor can’t work with one of their major competitors at the same time. While a freelancer might also sign a contract, it usually doesn’t come with such rigid conditions and instead merely dictates the scope of work and the agreed-upon fee.

4. Location of work

As we mentioned earlier, the term ‘freelancer’ can apply to doctors in hospitals, lawyers in law offices, and more. Broadly speaking, most freelancers work from home or some other neutral location like a coffee shop or coworking space. For independent contractors, working from the company’s location is not atypical. Some may even have an office or dedicated workspace there.

5. Type of role

You’re more likely to hear the term ‘freelancer’ used when talking about creative roles, such as photography, design, writing, and marketing. The term ‘independent contractor’ is more often used in business and strategic roles, like finance, operations, and HR.

6. Employment prospects

While it’s common for freelancers to have been previously employed at a company in their field (or be currently employed by one if it’s a side hustle), most operate with the assumption that they’ll be a free agent for the foreseeable future. With contracting, you’ll sometimes see what’s known as a contract-to-hire agreement. This type of arrangement is a means to an end. Under it, a worker contracts with a company for a set amount of time, understanding that at the end of the contract, the employer will either decide to hire them as a permanent employee or terminate the relationship.

7. Hiring process

These days, employers can hire freelancers and independent contractors with ease. Companies frequently turn to dedicated online marketplaces like Fiverr and Upwork to hire freelancers. These platforms let you browse freelance portfolios, advertise when you’re looking for work, set the terms of your project, and pay for completed assignments. When hiring independent contractors, companies often tackle the logistics in-house, advertising and recruiting for openings in a fashion similar to full-time roles or working with a staffing agency to handle the details. Independent contractors are also commonly hired through referrals.

8. Rates

Independent contractors and freelancers set their own rates, which a company agrees to when hiring. Freelancers typically work in one of two ways: at an hourly rate or on a per-assignment basis. For the latter arrangement, a freelancer would be paid by deliverable, like a freelancer writer who charges a flat rate per ~1,000-word blog post. While independent contractors can be paid by the hour, it’s also common for them to be paid a total sum for the length of their contract. In this type of arrangement, they receive payouts in a similar fashion to regular employees receiving bi-weekly or monthly paychecks.

Similarities Between Freelancers and Independent Contractors

Freelancers and independent contractors are alike in many ways. Here are the primary similarities between the two types of workers.

Flexibility

Both freelancers and independent contractors may work outside the traditional 9-to-5, Monday through Friday schedule. They retain the flexibility to work where they want, on the schedule that best suits them, and to choose how much work they take on at any given time.

Independence

Neither freelancers nor independent contractors are employees of the companies they work for. This is an important characteristic to be aware of because it means they’re not bound by the same rules and expectations that employees are subject to. There are limits on what a company can or cannot require.

Control

Independent contractors and freelancers set their own prices and dictate the terms on which they will be paid. They also have control of what projects they work on, which is in contrast to employees, who are generally required to work on the projects their managers assign.

Limitations

There are several limitations associated with using both freelancers and independent contractors. Since they’re not full-time employees, they may be less invested or engaged in the work than their W-2 peers. They may also lack the cultural cohesion that helps coworkers collaborate. Since freelancers and independent contractors may work with multiple clients at once, your relationship with them is at greater risk of being terminated if they find a better opportunity or decide to pursue a different kind of work.

Which One is Right for My Business?

The short answer is it depends.

A freelancer may be the better choice if you:

Want a mix of niche expertise and value
Have a less consistent workload and needs that fluctuate from week to week
Want to pay on an hourly basis
Don’t want to sign a long-term contract
Aren’t sure how long you’ll need help
Are comfortable being one of many clients
Are comfortable working with someone who’s fully remote
Have needs in creative areas like advertising, copywriting, design, or development

An independent contractor may be the better choice if you:

Need strategic direction or help defining the work to be done
Want to secure someone for a specific amount of time
Want to pay a fixed price for a fixed scope of work
Want exclusivity from other clients or competitors
Need someone who can work in the office some or all of the time
Have work that requires a level of confidentiality
Have needs in business/operations areas like accounting, HR, or operations

It can also be helpful to look at the types of workers other companies in your field use. Browse their career pages to see if they’re advertising for freelance, contract, or contract-to-hire openings. When in doubt, consider consulting with a staffing professional in your field who can walk you through your various options and help you determine whether a freelancer vs. an independent contractor is the best choice to meet your needs.

Get Help from the Experts at 4 Corner Resources

Do you have a project that requires a niche skill? Do you need help with accounting, IT, customer service, or another aspect of business? 4 Corner Resources can help you find the perfect staffing solution.

From temporary hiring to contract staffing, we’ll identify professionals with the skills and expertise you need while meeting your budget requirements and helping you control overhead. We can advise on the legal and financial requirements of each type of labor and even help you manage your payroll so you keep the IRS happy.