Is there a real difference between a freelancer vs self employed individual? Here, we will define these two similar, yet nuanced, terms. You get to know the benefits and drawbacks of each and other tips and considerations before hiring.
Definitions and Key Differences
Freelancers
Freelancers are individuals who do not work under a company or organization and earn a per-job income. Freelancers tend to work for multiple clients and can decide how much of a workload they want to take on. The type of work is usually short-term or project based. In terms of client relationships, they can interact with clients directly. However, some also work with an agency who interacts with clients on their behalf. This broad term encompasses multiple industries, skill levels, and specializations. Some freelancers have an array of skills within their respective field. Others focus on niches and prioritize honing their expertise in a single area.
Self Employed
Many consider the term “self employed” synonymous with entrepreneur and business owner. While less traditional, freelancers have proven that they too belong in this category. What’s the difference? Self employed professionals (SEPs) can run their business with a greater level of autonomy. They have control over multiple aspects of their work. They can choose their hours, their work methods, and the type of work they do.
Additionally, while freelancers tend to work alone, SEPs may hire other staff members. They also tend to work on long-term projects. They also interact with clients directly, though they may hire someone else to do this job as well. The self employed, by contrast, rarely market their individual skills. They tend to focus on growing their brand as a company and what they have to offer as an entity.
Pros and Cons of Hiring Freelancers
Advantages
There are several advantages to hiring freelancers for project-based work. Mostly, it relates to their flexibility and specialized skillsets. For one, you can find a freelancer that fits your budget and charges only the hours you need them to. This means you can hire someone as needed and scale only when necessary. You can also hire by skillsets and target hires to fit your niche needs.
Disadvantages
However hiring on a per-project basis also has its disadvantages. These potential drawbacks include limited availability and continuity concerns. Freelancers tend to take on more than one client at any given time. This means they may only accept part-time offers. If you are looking for a freelancer who can work for you full time, that narrows down your options quite a bit. Otherwise, you might have to add a couple dollars to their rate.
Another issue involves the challenge of maintaining consistent quality. Everyone works differently with varied work styles and methods. If you’re hiring different freelancers for different projects, you may run into problems with uniformity. Not only that, but transitioning to another freelancer can also be difficult. Compared to SEPs, there is a real risk of freelancers bailing mid project.
Pros and Cons of Working with Self Employed Professionals
Advantages
The benefits of engaging self employed individuals for ongoing needs involve consistency and dedication. Long-term contracts are more common if you go with this option.
What happens if you complete a project and then choose to hire them again? While you might end up working with different freelancers the second time, you don’t have to worry about consistency as much with SEPs. This is because they usually have standard operating procedures and internal quality checks. Additionally, in contrast to freelancers, you are more likely to have the full attention of your self employed partners.
Disadvantages
With SEPs, you’re looking at higher rates for higher quality service and stability. They can also be less flexible with pricing and services. SEPs often require legal contracts to proceed with bigger projects, which can be good for you both. However, if you want to maintain the flexibility that you have with freelancers, it can be challenging. This is because a contract protects the SEP’s pay. You can’t just close the project at any point without fulfilling the obligations of the contract. Just make sure that you are committed to whatever project you are signing a contract for, and all the inclusive terms.
Legal and Financial Considerations
In a partnership, there’s usually a contractual agreement of shared profits between parties. How the split happens and how much is up for negotiation. Now if you compare freelancer vs self employed in this area, the former usually doesn’t have this. Freelancers usually only get compensation for the work itself and not the profits their work may earn the company.
In terms of taxes, freelancers are in the same category as SEPs as far as US tax law is concerned. They have the same tax rate of 15.3% which includes Medicare and Social Security. Hiring companies are not liable to withhold these in both cases. Note that this may not be the standard universally. Companies are also under no obligation to provide worker benefits to freelancers or SEPs.
In terms of compliance, the best advice we can give is simple:
- Identify the regulations
- Create a plan and monitoring system for compliance
- Train workers in compliance
How to Decide What You Need
When choosing a freelancer vs self employed individual, you need to establish guidelines that help you assess your business needs. Determining your operational requirements will help you select the best fit for your projects. Here are some factors you might want to consider before deciding:
- Project duration – Is it a short-term or long-term project? Is it one-off or do you need continued support after?
- Skill level – Are you looking for entry level talent, niche specialization, or a level of polish? Freelancers can provide a lot of flexibility in this area. On the other hand, you might consider SEPs for their unique services, style, aesthetic, etc.
- Budget – You can find freelancers at almost any price point. This tends to scale with their skill and experience level, specialization, and project scope. However, working with organizations tends to cost more. In exchange, you get something more reliable with a larger scope of services and support. On another note, financial projections can help you decide which investment is more feasible and profitable in the long-term.
- Long-term goals – Which decision will help you reach your company goals, mission, and objectives? Are you looking for longevity in partnership?
The Hiring Process
Here’s our checklist for finding, vetting, and contracting freelancers for your projects:
- Create comprehensive job listings and job descriptions. This may require some research but you don’t have to make one from scratch. There are a lot of templates out there that can help you define and determine roles, responsibilities, and qualifications.
- Create a comprehensive list of interview questions. You can consider this part two of your vetting process. As you determine your needs, you’re going to want to tailor the questions to them. This list of questions will help you narrow down the best candidate.
- Research Platforms – There are many blog sites that help compile lists of reputable sites to find talent. In fact, we’ve made several lists you may want to check out after this one. See also: 11 Best Websites to Hire Latino Virtual Assistants for Your Business.
- Vet through resumes, cover letters, ratings, and reviews – These help you find a trustworthy, enthusiastic, and competent hire.
You also need a set of guidelines before establishing partnerships and agreements. Entities enter into partnerships because both parties have something to gain from it. However, selecting the right partner is more than just finding someone who can help you make more money. You need to consider their mission, vision, values, and work ethic. Aligning these is crucial for a stable work relationship, brand consistency, and consistent quality output.
Contracting is another matter. Creating contracts with freelancers may not require a lawyer. However, you should have a lawyer present when creating a partnership with SEPs and their respective organizations (if any). These agreements clarify the terms like profit-sharing and decision-making responsibilities. They also protect from potential liabilities on both sides.
Managing Your Virtual Team
Excellent project and team management begin with effective communication. Here are a few tips to help you maintain a strong working relationship with both freelancers and self employed individuals.
- Provide all the tools, guidance, and information they need off the get-go
- Schedule regular updates and progress checks
- Set up communication channels early on and create feedback loops
Part of effective team management also involves knowing how to use the tools and technologies to support collaboration and productivity. This includes tools like Slack, Asana, Trello, and more.
Frequently Asked Questions
How do intellectual property rights vary between hiring a freelancer vs self employed professional?
Generally, freelancers and SEPs hold the rights to their created works. That is, unless there are stipulations within a contract or partnership agreement that say otherwise. For instance, a contract may state that freelancers own IP rights until they receive their full compensation. In partnerships, both parties usually have joint ownership.
What are the best practices for resolving disputes with freelancers or self employed individuals?
First, step up and take responsibility first for your part in the dispute. Next, set a meeting to discuss what went wrong. Troubleshoot together to find a solution. If you had a good thing going, try to reconcile and save the partnership. If not possible, at least do your best to complete the project on good terms.
Can I hire a freelancer or self employed professional from another country, and what are the implications?
Absolutely! A lot prefer to hire remotely because of the benefits of outsourcing, such as flexibility, scalability, and cost savings. Though there are also drawbacks, such as cultural differences, time zones, and communication challenges.
How do I transition a freelancer to a self employed status or vice versa if business needs change?
You can move any freelancer over to self employed status at any time. As long as the freelancer is willing to transition to a more full-time position and schedule, you’re good to go. You can immediately have a conversation started around what the updated terms and obligations will be. Then you can get a contract drafted and finalized quite quickly. Just make sure that your business actually needs this level of change. By switching over, you could very likely lose the flexibility that you enjoy with freelancers.
Moving a self employed hire to a freelance position can be more challenging. You need to check your existing contractual obligations to make sure that this move will not violate any agreements. Of course, you also need to ask the hire if they agree to the shift. We strongly advise you to get that in writing, just in case, to protect yourself and your business. Ensure the hire that their status is secure as protected under the existing contract. However, if they are amenable, you would like to move them to freelance status. They will probably expect a higher hourly rate, so be being willing to take that on. Because they are being placed in a more unstable position, this increase helps to compensate for it.
What insurance should I consider when hiring freelancers or self employed professionals?
While there is no legal obligation, there are some freelancer insurance policies you can consider. This includes professional indemnity insurance and cyber insurance.
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Conclusion
When it comes to choosing a freelancer vs self employed professional, there’s a lot more to consider than you’d think. Ultimately, it all comes down to what makes the most sense for your business goals.
