What is the difference between freelancer and contractor?

Question

I have been hearing about freelancers, especially in the software industry.

• What is the difference between freelancers and contractors?
• What are the advantages and disadvantages of each?

As to my own situation, I've been working as contractor in the software industry (mostly in Java technology). I have my own company and I get paid for every hour that I work. The end client pays the vendor and the vendor takes a 20% cut and vendor pays my company. I am the sole employee of my company. Usually the projects/contract lasts between 1 year to 5 year.
I go to my client's office location for my work.

What would be the difference between my current situation and being a "Freelancer"?

Answer 1

They are used somewhat fuzzily interchangeably, but when there is a distinction, it is that a freelancer is self-employed possibly with a contract whereas a contractor may or may not be self-employed with an employment that is usually defined by the terms of their contract. This is the case in the USA but it may be different in the UK or other countries.

The "difference between your current situation and being a 'Freelancer'?" is that currently the client pays the vendor and the vendor pays you as opposed to you being paid directly.

Answer 2

You're a contractor when you're getting paid and a freelancer when you're unemployed.

But, seriously, in my experience in the USA, here's how it works.

A contractor generally works for one client on an exclusive basis through a recruiting/placement firm. They're essentially a temporary employee and will usually be expected to keep certain office hours and so forth. The projects will tend to be longer term, typically 3-12 months, although there are cases where short term projects are farmed out this way. You're paid by the hour, usually on a W2 basis, with the sponsoring company providing some benefits, taking care of employment taxes and taking a cut of the hourly rate. For example, you're paid $40/hr and the client is billed $70/hr for your time, the recruiter pockets the difference.

Freelancers generally work for multiple clients and find work on their own. They have a 1099 relationship with the client companies, meaning they're totally responsible for their taxes, including employment taxes, and benefits themselves. Most projects are short term or are on an "on call" basis. Some work on site but often they'll work from their own location and only visit the client office as needed. It's common for freelancers to get overbooked and not be able to complete work for all clients within the required time frames. That's why some companies, those that have been burned, prefer to use contractors since they have greater control.

There are some people who have kind of a hybrid arrangement where they work on a 1099 basis without a contracting company taking a cut but the tax laws can get messy if things aren't done right. I screwed this up once and ended up owing the IRS a huge amount of money.

Answer 3

Without repeating what has already been said, a freelancer is a self-employed contractor or what SBA calls an "independent contractor" as opposed to simply a "contractor". Also note that a freelancer is strictly an individual juggling gigs, but an independent contractor proper can be a full-scale business with its own employees.

Answer 4

The trouble here is mixing up legal status with colloquial titles for work arrangements. A worker who gets paid on a W2 by a temp agency is an employee of the temp agency. A worker who gets paid on a 1099 by the end client or by an intermediary agency is an independent contractor.

In my experience, until recently, the difference between "freelancing" (a type of independent contracting) and a "contracting" (another type of independent contracting) was that freelancers typically worked on discrete projects with specific deliverables, e.g., a brochure, while contractors typically worked over a span of time, e.g., a six-month stint to install a new computer system and migrate data or content.

The words have been blurred largely because companies don't want so many employees. So indefinite, ongoing, somewhat variable work, integrated with the basic operations of the company, has been relabeled "freelance," "contract," or even "consulting" to mean simply outsourced, either to a temp agency or to an independent vendor.

Answer 5

Freelancers are usually their own boss, more like a 1 man business even if they work in a team. A contractor is more likely someone who works for a company who provides contractors on demand to whoever needs them. Thus a freelancer has a lot to handle own their own especially when it comes to their payment/taxes/legal also finding work/projects/contracts and negotiating the price for their work, while contractor has their company's support to handle many(all) aspects for them. On the other hand a freelancer gets paid whatever was agreed for the work, while contractor most likely gets paid the fixed rate from their company.

Answer 6

There is no clear definition but here is mine:

A contractor is an hourly worker with an extended or open ended contract. This may be direct (i.e. 1099) or through a agency (i.e. w2 employee of the agency)

A freelancer is hired on for a specific job and paid a fixed price for the product.

As for the advantages and disadvantages. It depends on the job and the worker. Obviously if you are being paid by the job you may underestimate your time and get paid less per hour. This can work the other way around of course.

There are probably many many tax implications which are quite variable and it is difficult to know which arrangement would be best for any individual.

Answer 7

With respect, most of these answers are like the blind describing an elephant. Here's what you should know. There are two crucial issues: who initiates the project and who gets the rights to it. These are crucial to you and to government tax and labor agencies. We're talking about the USA, by the way.

In freelancing, you initiate the project, you dream it up, such as an article on coding, and you seek a buyer. When you finish the project, you sell some or all of the rights to the buyer and keep the rest yourself. You are a business selling rights to use your product; copyright is fundamental to your business and you invoice the buyer your price for the rights.

In independent contracting, the buyer initiates the project, such as an app, and hires you to produce it. She usually gets all rights to the project, either instantly or when you finish. You either sell your labor and bill the buyer for your time and expenses or you sell a product, such as three presentations on creating iOS apps, and bill the price of the product. In either case, copyright is a by-product and rights are rarely invoiced.

There are many permutations of these two classes of work, including working through a temp agency of some sort, but these are the fundamental definitions.