As a remote employer looking to globalize your workforce, you need to avoid the confusion between freelance vs self-employed individuals.
Both refer to individuals who work independently without having their operations overseen by a parent company.
Freelancers may work for many clients on short-term projects, while self-employed individuals have a broader scope. They might even be business owners or sole proprietors.
Recognizing the difference between freelance and self-employed is crucial for national and international businesses.
Failing to do so may result in misclassification, impacting everything from self-employed vs freelance tax obligations and contracts to career planning and business strategies.
We’ll discuss the clear differences between freelancing vs self-employed workers in this guide.
What Does It Mean to Be Freelance vs Self-Employed?
Here’s a detailed overview of the meaning of self-employed and freelancers so you have a basic idea of their differences and comprehend the deeper comparisons.
Defining Freelance
To define freelance workers, they work on multiple short-term projects for many clients who pay for freelancing services.
To address the question, “Is freelancing self-employment?” We can technically regard it as such. The only difference is that they work entirely under the client’s direction.
Freelancers are typically known to operate alone to fulfill their clients' goals. Clients can offer input and grant approval on deliverables within a defined scope. Common freelancing jobs include
- Writing
- Website development
- Graphic design
- Photography
- Consulting and advising
- Private tutoring
Defining Self Employed
Self-employed individuals enjoy a lot of autonomy because they run their businesses and offer highly skilled services in specific trades.
They can decide what project to work on, the duration, and who they work for. Unlike freelancers, they are not obligated to be under the employer’s jurisdiction.
Some examples of self-employment are:
- Business owners
- Tradespeople
- Salespeople
- Lawyers
- Actors
- Investors
Working from home avoids commuting, and fewer commuters result in
lower greenhouse gas emissions.
Key Differences Between Freelance vs Self-Employed
We’ve covered the differences between self-employed vs. freelance in detail here. We will cover everything, starting with business structure, do freelancers pay tax, control, and operational dynamics.
1) Business Structure and Control
Freelancers generally offer specialized services, rely on their skills, and work with clients on a one-to-one contractual basis.
Self-employed individuals operate on a broader business-like structure with the flexibility to scale. Although they may initially have to work solo, they may hire human resources and other contractors to manage full-fledged operations.
2) Tax Implications
Freelancers operate as sole proprietors and track their project-based income. They are responsible for deducting their expenses and clearing the tax on freelance work.
It’s the same for self-employed individuals, but they may also have to manage payroll taxes and compliance if they hire their employees.
3) Insurance Requirements
Freelancers usually require basic insurance coverage that safeguards their finances, health, and careers.
Self-employed individuals might need additional policies. They may offer workers' compensation, healthcare insurance, or business liability insurance, especially if they have a designated workforce.
4) Hiring and Managing Employees
Freelancers generally work alone and focus on individual projects for multiple clients. They usually don’t bank on an external workforce unless they are temporarily planning to scale up.
Self-employed individuals, however, can hire employees or contractors as their businesses grow or for business growth.
Taxation for Self-Employed vs. Freelancer
Understanding taxation is critical when charting the differences between self-employed vs. freelance workers. Their responsibilities may overlap, but the scope involved is entirely different. Here’s a detailed breakdown:
How Freelancers and Self-Employed Workers Pay Taxes
Both freelancers and self-employed pay taxes. They file taxes as independent contractors.
Quarterly tax payments are a requirement. Submit IRS Form 1040-ES each quarter. This covers both self-employment and income taxes.
Self-employed people pay full FICA taxes, at 15.3%—freelancers who earn less than $400 pay no FICA.
Tax Deductions for Freelancers and Self-Employed
Freelancers and the self-employed can claim similar deductions to reduce their taxes. These employment tax deductions effectively reduce taxable income.
- Travel
- Qualified business income (QBI)
- Self-employment tax
- Office supplies
- Health insurance premiums
- Home office
- Education
- Startup costs
- Internet/phone bills
- Business Insurance
- Advertising
- Meals
- Dues and publications
- Vehicle use
- Retirement plan contributions
Filling taxes for freelancers may be simple, but self-employed individuals managing teams must account for payroll taxes and employee-related expenses. This can add complexity to their tax strategy.
Insurance Needs for Freelancers and Self-Employed
Both freelancers and self-employed individuals need to insure their business and personal assets. The type of coverage and extent of coverage can differ based on the work and scope of the work.
Types of Insurance Required
Here’s a short breakdown of the essential insurance types for both freelancers and self-employed individuals:
- General liability insurance:
This insurance safeguards individuals against third-party claims, like property damage or work-related injuries.
- Professional liability insurance:
This insurance is mandated for service providers such as designers, consultants, and writers to cover claims for errors, negligence, or omissions.
- Health and disability insurance:
This insurance is critical for both groups and can be sourced through marketplaces or self-employed plans.
- Commercial equipment insurance:
This insurance covers tools, equipment, or technology that are mandatory for daily operations.
Fidelity bonds safeguard a business from financial losses caused by employee dishonesty or fraud.
- Cyber liability insurance:
This insurance covers the costs associated with data breaches, cyberattacks, and other online security threats.
Benefits of Having Insurance
Having the right insurance is crucial for both freelancers and self-employed individuals. However, the insurance policy and offerings should align with the mode of operations. Here are the benefits they can offer:
Shields against unexpected costs due to lawsuits, accidents, or damages.
Having health insurance can help freelancers and self-individuals receive many tax benefits.
Allows individuals to focus on work without constantly worrying about potential risks.
Practical Implications of Choosing Freelance or Self-Employed
When differentiating between self-employment vs freelance, considering the practical implications of each mode of employment is crucial. As a remote employer looking to hire independent workers, here are some things you should remember.
Work Flexibility and Project Management
Achieving a work-life balance is challenging. Freelancers often blur work and life, and their client-driven schedules complicate boundary-setting. Self-employed people have more time flexibility. Still, business growth demands a lot, so balancing work and personal life is tough.
Business Growth and Expansion
As a remote employer, you must consider several benefits and challenges of globalizing your workforce.
If you hire a self-employed individual, you can benefit vastly because they generally offer more extensive operations and help accelerate brand development.
Self-employed individuals usually own companies with large teams of experts and expansive services. However, it can be quite cost-intensive.
Freelancers working solo have fewer avenues for scaling. Even if you hire more than one freelancer, they usually take on several clients, and their entire focus may be divided if they aren't experienced enough.
Their growth potential is limited unless they transition to a self-employed model. However, hiring a freelancer can be a more budget-friendly option, especially if you are working with a globalized team for the first time.
Common Challenges Faced by Freelancers and Self-Employed
Some of the typical challenges encountered by self-employed individuals, freelancers, and independent contractors are:
Both freelancers and self-employed individuals face one common challenge: inconsistent income. This puts a lot of pressure on their budgeting and savings plans.
They also need to manage taxes, make a retirement plan, and handle business expenses, which require careful planning.
Finding and retaining clients can be stressful. Freelancers often find themselves juggling multiple clients. In addition to this, they need to market their services consistently to maintain a steady flow of work.
Although they may focus on fewer clients, self-employed individuals need to nurture long-term professional relationships and continually attract new business.
Maintaining a healthy work-life balance is difficult for both groups. Freelancers, for example, may struggle to set boundaries between work and personal life due to their client-driven schedules.
While often having more control over their time, self-employed individuals face the challenge of balancing the demands of growing a business with personal life commitments.
How Skuad Can Help
Choosing between freelance vs self-employed matters. Both paths offer challenges and rewards. Understanding these differences is essential. This helps you make the right decision. Skuad simplifies global workforce management for you. This solution caters to freelancers and self-employed individuals.
Skuad also simplifies payroll, compliance, and contract management. Whether navigating client acquisition or expanding your business, Skuad supports your growth.
Book a demo with Skuad today!
FAQs
Are freelance and self-employed the same thing?
Although freelancers and self-employed individuals are similar, they are different. Freelancers usually work solo, whereas self-employed individuals generally run companies with a workforce.
Is it better to say freelance or self-employed on a resume?
It all depends on your mode of operation. If you plan to work solo for the long term, it is better to say that you are a freelancer in your resumé to avoid misclassification later on. If you are a business owner with a designated workforce, always mention that you are self-employed.
Who is considered a freelance worker?
Someone who operates solo and manages their own taxes and insurance policies is considered a freelance worker.
Who is considered self-employed?
A self-employed person can be both a freelancer and a business owner.
Are freelancers considered unemployed?
As long as freelancers have a steady flow of work and payment, they are technically not considered unemployed.
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