Freelance vs self employed? If you’re confused about the two terms, then read below for all the details to know.
Surely we have all filled out a form or two which asked us about our employment. For most of us, the answer is very straight forward and we either pick one of the following options: full-time, or part-time. Most people either work full time and receive complete benefits while others are on an hourly wage. Some of us are in a gig economy and in that case, the answer isn’t straightforward.
You might be inclined to check the self employed box but still, be confused if you are selecting the right options or not.
If you are confused about the difference between a freelancer and a self employed individual, this article is perfect for you. While these two terms are commonly used interchangeably, there is a theoretical, legal, and mental reason to understand the difference between the two.
Once you have fully understood the differences between the two, it will help you set realistic goals for the future, plan your work, and create a solid professional identity.
Key Differences: Freelance vs Self Employed
Being a freelancer essentially means that you work for more than one client/company at a given time. You essentially sell your time/services on an hourly or per-project basis instead of getting a monthly salary and filling out work hours.
Self employed is a formal term that is used to describe someone who works for themselves. When it comes to self employment, different people have different definitions. To clear out the confusion, you will be called self employed if you are one of the three:
- You carry a business as a sole proprietor or an independent contractor.
- You are in partnership with individuals that carry out a business.
- You are in business for yourself. It includes both full-time and part-time businesses.
All in all, you will be considered self employed if you set your hours and charges.
Now you would say that this definition also includes freelancers. Right? The answer is not all the time. Some freelancers can be called self employed and vice versa. However, these two terms aren’t exactly the same.
Let’s look at the key differences between the two:
Freelancers Do Work for Someone
While freelancers can decide their rates and working hours, they are essentially working for someone else. They sign contracts and agree to terms that are defined by a company or an individual.
However, a self employed individual who has a business does not need to sign contracts created by someone else. They usually sell to customers in a consistent manner.
Freelancers Tend to Work Alone
Generally, self employed individuals have a team working for them, helping them expand their business horizons. By no means is it a legal definition but is a common differentiator between freelancers and self employed individuals. Freelancers usually work alone and tend to do all of their work by themselves.
Freelancers Can Have a Day Job
There are a lot of people who have a day job and do freelancing on the side. In fact, this is how most people get started. Why not? It is a great way to pursue your passion, diversify your income stream, and test out the waters in a low-risk manner. Once you are sure that freelancing is for you, you can switch to becoming a full-time freelancer.
A self employed person will only work for themselves.
Freelancers Can Work on Multiple Projects at Once
The most common type of freelancer will be working with different companies/people at once. Someone who is self employed might also work with different companies. However, they will not define themselves as working for different people. A self employed individual will have a company that funnels contracts through.
Self Employed People Have Customers While Freelancers Have Clients
This is the easiest distinction between the two. Clients are the ones that dictate the terms of the contract while customers usually seek out a particular product or service at a set pricing, based on the company’s reputation. Again, this isn’t a legal definition by any means and is more of a mindset.
Legal Aspect of Freelance vs. Self Employed
There is no legal definition of freelance vs self employed. However, there are differences in the way you will set up your business. Based on where you live and how much income you generate on a monthly basis, you may or may not require a license to be a freelancer. In some cases, all you need are the tools that will help you do the actual work.
If you want to go a step further, you need to rethink registering your business regardless of the legal requirements. You will have to figure out the structure that works for you. Should you opt for a sole proprietorship or LLC?
Generally speaking, self employed individuals start out with a sole proprietorship and expand from there. On the other hand, if you are a small freelancer who makes a couple of hundred bucks every month, you don’t need to worry about legal aspects. However, if you grow into the role of a self employed boss, rethink how you can protect yourself from clients, disasters, and technical problems that can make you lose work. You will have to protect your assets even when you wish to work from home. Your business property needs to be separate from your personal property.
It is important to have insurance as it will help you win contracts. At times, larger companies only work with contractors who have liability insurance: it is dependent on the industry and type of clients you wish to peruse. It is important to do your homework and get the right coverage.
Tips for Success for Freelancers and Self Employed Individuals
Here are some of the tips that will scream success for both freelancers and self employed individuals:
- Staying consistent will make you successful. It is hard to stay motivated when you are the only person you are answerable to. However, make it a point to be consistent.
- Establish defined working hours and days. Most people make the mistake of working whenever, wherever. This might sound very attractive in the beginning but you will end up frustrating yourself.
- Have a designated working space and don’t work out of your bed. These days you can find plenty of coworking spaces that can work wonders for your productivity.
- Work hard and smart. Who said success comes easy? Hang in there put in the hard work and you will see the results.
We hope you found this article informative. If you have any questions, leave them down in the comments section below.