There is a thin line between being self-employed and being a freelancer. In case one is not on the company’s payroll, we tend to confuse the two. They say what is in a name, after all, however, some aspects are crucial to understanding; Is self-employed the same as freelance? By legal definition, being self-employed and freelancing are the same thing. Let us explore the difference between freelance and self-employed.
The common ground here is that both roles give you independence in terms of working. Also, both freelancing and self-employment give you the choice to choose the type of work you want to do.
When we think of freelance vs self-employment, the main difference lies in how one wants to conduct their business. There is often this question – is freelancing considered self-employment?
If as an organization you are considering hiring people, it will be helpful to begin by defining freelancing and self-employment.
Who can be called self-employed?
Business owners are mostly called self-employed. Self-employed people include entrepreneurs, start-ups, and small or medium-sized businesses. Self-employed people handle their businesses. They have a great degree of autonomy with the kind of work they do.
Self-employed people get to decide what they want to work on, and also decide their work hours. Also, some self-employed people would want to take on more employees. They may seek the help of freelancers as well.
Pointers for easy identification as a self-employed individual:
- They pay themselves a salary
- They have a dedicated office space
- They bear the overheads of running a business
- They have hired employees to work for them
- Their end goal is business growth
- Their business is the primary source of income
- They are selling products or services
Who can be called a freelancer?
A term that we hear very often is the gig economy. The people who drive the gig economy are freelancers. A gig by definition is a job that only lasts for a specific time.
To define freelance work, we can say it is an amalgamation of several short projects at a time. A freelancer is someone who may have contracts with a single client or various clients at one time.
An interesting fact here is that the term freelance was coined in the early 1800s. When the term freelance came to use in the English language, it referred to any medieval mercenary who would fight for whichever nation or person paid them the most. Hence a stark difference between freelance and self-employed is that a freelancer is a one-man army.
Freelancers do not have employees of their own. We wonder here, does freelance work count as self-employed? We can say that freelancers may be running their businesses, but they are the only ones working. Freelancers trade their services with one or many clients. They do so in exchange for pre-decided remuneration.
Pointers for easy identification of a freelancer:
- They charge based on time spent on the completion of a project
- They work alone
- They mostly work from home or work from no fixed location
- They more often than not work in a creative field
- For some, it may be a side hustle to the main job
What is the difference between freelance and self-employment?
Let’s together solve the tug of war between self-employed vs freelance work. There can be a lot of debate around this subject. But numerous pointers will help you understand the difference.
Let us begin to comprehend the difference between freelance and self-employed.
Freelancing is taking up work & self-employment is doing their work. A freelancer takes up work from various clients. They can work with many clients at one given time. If we define freelance work, it is taking up work from someone else. In the same manner, self-employed people have their own independent business. Here they sell their products or services to their customers.
It makes us wonder – is freelance considered as self-employed? Freelancers can be self-employed in a manner that they are setting their charges. They are also setting their working hours. Leaving that aside there is a lot of difference between freelancing and self-employment
Freelancers are client-oriented & self-employed are growth-oriented
A self-employed individual will focus on the overall growth of their business. The business may be a service or a product. They will focus on overall business growth. In pursuit of their goals, if need be, they can hire employees or take the help of freelancers too.
When we consider freelance employment, they focus on acquiring projects that match their skillset and the time on hand. Their focus is in the optimum utilization of time to deliver maximum projects.
Freelancers are their own team
A self-employed person will hire a team- small or big, depending on the need of the hour. A self-employed person may entail the help of a freelancer also to get their work done.
A freelancer takes up work from clients based on their own skillset. A freelancer does not have a team. It is always an individual working on their own to fulfil client commitments
For some freelancing may be a side hustle
When discussing freelance and self-employed individuals, it cannot be overlooked that a freelancer may have a job. A lot of individuals take up freelancing as a side hustle for extra income.
For a self-employed individual, the core focus is their business. It is a full-time occupation.
Freelancers take up multiple projects at a time
By the nature of freelance employment, they can take up multiple projects at a time. They can be from different clients too. This depends on the time on hand of an individual versus the time taken to complete a project.
A self-employed individual will work with many businesses but not work for them. A self-employed person will work with them, providing his product or service.
Differing work commitments
Since the nature of work is different, the freelance and self-employed differ in their work commitments also.
Self-employed individuals are dedicated to their own business and their consumers. They are loyal to their customers who use and promote their offerings.
Freelancers have multiple commitments. They drift between many clients on the project to project basis.
Does freelance work count as self-employed?
Freelance and self-employed are not mutually exclusive. It is so possible that someone may set out as a freelancer and go on to set up their business in the future.
To state an example one can say, a web developer is offering web development services as a freelancer. In the due course of time, they may aim to set up their web development businesses and employ more people.
So the question that does freelance count as self-employed is inconsonant.
Taxation and insurance: Freelance vs self-employed
When we consider freelancers vs employees, there are a few things that one needs to bear in mind. For an employed individual, insurance and taxation are taken care of by the company they are working for.
What is the difference between freelance and self-employed taxes?
Let us begin by establishing that every citizen in any country who is earning above the stipulated income set by the Government is liable to pay taxes. In this scenario when we consider self-employed vs freelance taxes, both are the same in the eyes of law.
If we consider the rules laid by the American Internal Revenue Services, the following people are eligible to pay taxes:
- One is a sole proprietor, an independent worker or carries out some type of trade
- One is a partner in a firm that carries out trade or business
- One is in a business for self- full time or part-time
This is not an all-encompassing list but it does throw a fair bit of light on who is eligible to pay taxes. Freelance and self-employed individuals have to pay taxes. Even independent contractors have to pay taxes.
Taxation will depend on the nature of your business goals as a self-employed. A lot will depend on your hiring plans and also on taking loans. For freelancers here, it is best to maintain records. It will help to keep personal and business separate.
Filing taxes can be a daunting task. For ease of calculation, there are plenty of income tax calculator tools available online. One can get a fair idea of what total taxable amount they are looking at.
If you are someone who gets intimidated by taxation then it is advisable to seek professional help. as a freelancer when you are doing all the work on your own, it is good to take advice to stay out of trouble. Also, stay abreast of the latest taxation dos and don’ts.
For self-employed individuals, setting a business goal will determine the course of action. Instances like hiring staff or taking a business loan will regulate the taxation amount. The business loan component will apply to freelancers too. Small business owners, must register their business with the regulating authority.
The final taxable amount while considering self-employed and freelance taxes rests on a lot of factors like:
- Age
- Office space and supplies
- Travel expenses
- Marketing expenses
- Business loans
- Upskilling expenses
- Insurance
- Scale of business conducted
Filing taxes can be a daunting task. It is advisable to take the help of an expert to do so. Especially as a freelancer when you are doing all the work on your own, it is good to take advice to stay out of trouble. Experts like legal advisors, bookkeepers, or the office of Small Business Administration are there to help. Also, stay abreast of the latest taxation dos and don’ts.
Insurance for the freelance and self-employed
A famous quote says – Do something today that your future self will thank you for. Insurance is one such thing that you ought to take for a secured future. It is to safeguard yourself and your loved ones from unforeseen circumstances.
In the case of freelance vs self-employed, the requirement for insurance remains the same. it is imperative for both of them At first it may not appear important for freelancers to take business insurance, but a lot is at stake for the freelancers on the business front as well. Both self-employed professionals and freelancers need business insurance to shield their monies.
For self-employed individuals, insurance is the transference of risk. Any business risk that could arise is transferred from the business to the insurance company. Substantial insurance coverage means one can concentrate on growing the business. In such a scenario there will be more scope to take a calculated risk. Workers’ compensation insurance is one of the main business insurances a self-employed individual should consider. This will be additional protection against any unfortunate mishaps.
Freelancers, though working on their own, are at business-related risks. They may face the hazard of losing their data due to data theft or any cyber mishaps. This is just one of the many possible scenarios that freelancers need to be protected from. It is a good idea to stay insured against
- Cyber and security threat
- General liability
- Professional liability
- Business disruption
The best place for a freelancer, to begin with, is general liability insurance. It is the most basic form of insurance that a freelancer can have. The rest will depend on the nature of the work of the freelancer.
The requirement for health insurance remains the same whether you are a freelancer or you are self-employed. As individuals, we need to be ready to face any health-related challenges head-on.
Getting your health insurance is an easy task. With everything being accessible online, it is easy to assess what health insurance policy will be the best for an individual.
Whether you are freelance, self-employed, or an employed individual, you are the same as the law. Hence the taxations and insurance needs remain more or less the same. As a law-abiding citizen of any country, one needs to be self-aware of their taxation liabilities. A lot of states and nations make it mandatory to take insurance. Insurance should be considered a safety net.
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