Freelance Vs. Self-Employed: What's the Difference?

Freelance and self-employed are terms often used interchangeably without much insight into what each one actually means.

Well, there are nuances to both and those in the space should be aware of them and how they can be affected by them.

I’ll cover what the differences are between freelance and self-employment, what types of work they do and with whom, the various pros and cons of freelancing vs. self employed, and of course…taxes.

So let’s get into it.

I Work Alone

Batman is a freelancer, the Joker is self-employed.

Let me elaborate.

Freelancers generally work alone rather than work with a regular team or have others working under them.

Working on your own generally means smaller projects or working on smaller components of larger projects.

Whereas someone who is self-employed generally works as part of a team in their own business.

A freelancer can become self-employed when their freelance work outgrows them and they need to start hiring a team.

For example, a freelance photographer whose business grows large enough that they have to hire an assistant and an editor then becomes self-employed.

Customers Vs. Clients

Anyone that is self employed will say that they never stop working.

Freelancers, on the other hand, can pick and choose when and with whom they work.

If you are self-employed, you can’t always pick and choose your customers.

While still performing work for their clients, freelancers also have the ability to set their own hours and rates, while self employed individuals own their own business and need to continually sell to customers.

Let’s try and make this really simple – if you have clients you are a freelancer, if you have customers, you are self-employed.

Multiple Jobs and Contracts

Freelancers often handle several different clients and jobs at once.

While a freelance graphic designer might have one job with a church and another with a Fortune 500 company, they are completely separate jobs.

While those that are self employed might work with different types of customers and outside contractors, they wouldn’t describe their work the same as a freelancer would.

Gig or Full Time

This is probably one of the biggest indicating factors of those that are freelancers vs those that are self-employed.

Generally speaking, freelancers are gig workers that also can hold down a full time job.

Their freelance work often is an additional stream of income or a creative outlet.

Those that are self-employed are full time in their business. It can be pretty difficult to hold down a full time job working for someone else, while also being self-employed and working for yourself.

But who really cares if you are a freelancer or you are self-employed other than you?

Well…the government for one. Uncle Sam still needs to get his cut.

Here is why it’s important to ensure you are correctly classifying yourself.

Taxes

You’ve heard the saying, there are only two certain things in life, death and taxes.

So make sure that you aren’t overpaying and are able to claim the most possible by categorizing yourself correctly.

In the wonderful world of taxes, if you claim to be a freelancer or independent contractor, your client doesn’t withhold any income from you, they are not responsible for Social Security or Medicaid on those taxes that you are supposed to claim.

You have the sole responsibility of claiming all income and paying your self-employment taxes.

While we won’t get into the intricacies of sole proprietors, LLCs, C-Corps, and S-Corps, just know that generally speaking, a freelancer is a sole proprietor, while those that are self-employed might fit into any one of these entities.

Benefits

This applies in both the employee and self-employed sense.

Depending on your entity classification, you can receive different benefits or write offs.

Those that are self-employed are often considered employees of their own company, which can lead to additional benefits and tax advantages that freelancers do not get.

While this post is not meant to dive into the depths of self-employment taxes, just be aware that how you classify yourself can have a very large, financial impact.

Boundaries and Expectations

Depending on your classification, whether you are a freelancer vs. self-employed, can make a difference with how your clients or customers interact with you.

Creating clear boundaries and expectations with your customers or clients can go a long way to create success.

Insurance

This can be a really big determining factor in whether or not you are a freelancer or self-employed.

While everyone should carry some type of insurance, often it is required for many self-employed individuals to carry insurance or licensure.

A plumber coming into your house to fix pipes can mess up a lot more than a freelance writer you hire to help you write an ebook.

As a freelancer you can get general liability insurance which would help to protect your personal assets in the event that a client would try and take you to court for any type of reason.

I get it, it can be confusing.

You don’t want to risk classifying yourself incorrectly and lose tax breaks and paying in more than you need to.

While there might be a couple different factors to consider, you can come to a pretty easy conclusion as to whether you are a freelancer or a self-employed individual by asking yourself one question.

Are you planning on working for yourself full time or are you still working as an employee elsewhere?

Most likely if you are going to be working for yourself full time and not for someone else, then you are self-employed.

If you are going to remain an employee and work gigs for clients on the side, then you are a freelancer.

Setting Yourself Up for Success

Whether you are self-employed or are freelancing, you still have a business.

Therefore, you need to go into your business having set things up correctly in order to succeed.

When you get things set up right from the very beginning, then you can make a more solid plan for the future of your business, set S.M.A.R.T. goals, and create your stellar professional identity from the very beginning.

You are going to want to make sure that you have all professional social profiles to help promote your work if necessary (this depends on the profession but is very useful).

Create a professional looking website where potential clients and customers are able to contact you.

Think about the goals you would like to put in place for your business.

Remember, to work with SMART goals; these goals are specific, measurable, achievable, relevant, and time-bound.

As a freelancer you might just have a goal to make an extra $500 a month in profit to help pay off your student loans quicker.

As a self-employed business owner you might set a goal to make $100,000 in new sales or contracts next quarter.

Are you only planning on working freelance until you meet a certain goal or are you looking to turn it into your full time business?

There is a big difference in how you will treat your work and handle your clients if you are looking to build a career versus just trying to make some extra cash.

How much work are you willing to take on at this point in your life?

A 20-something still living with their parents might be more inclined to be self-employed whereas a stay at home mom with little ones at home might be better freelancing (at least until the kids are older).

This goes back to boundaries and expectations.

People and companies that hire freelancers realize that these individuals have other commitments and their work is not always a first priority.

Lastly, how do you view yourself?

Realistically people tend to gravitate toward one term or the other based on their experiences and how they want to be perceived by others, in this case, their potential clients and customers.

People have become self-employed while still working a 9-5 and built large companies while still being an employee.

People have started from being unemployed to making a comfortable living while freelancing and not having to put in 40+ hours per week.

The terms freelance and self-employed are more so for identifying purposes and are not concrete.

The Legal Side

While we briefly covered insurance and those wonderful tax breaks you can get as a freelancer vs. self-employed business owner, there are so many more legal topics than we have the time (or brain power) to cover here.

Just be aware that every state and country can be different in how they legally handle freelance vs self-employed individuals.

As I am not a legal professional and never care to be, I highly suggest that you consult with a real deal lawyer that specializes in business law to cover all of your bases.

Talk to them about your services, the intention you have with your business, and ask them the hard questions to get the right answers.

Can you get sued if someone gets sick from eating those organic soaps you sell on Etsy?

Hey, it happens!

So no matter how you are going into this business venture, just be sure that you do your due diligence and legally protect yourself so you don’t wind up as one of those crazy stories.