Independent contracting, better known as freelancing, has steadily risen in popularity over the years. According to recent reports from Statista, a massive 57.3 million people in the USA work as freelancers. More people today enjoy the flexibility of working for themselves, virtually anywhere, with better choices about the workload they take, and a strong emphasis on maintaining work-life balance.
While the benefits are tempting, for some professionals, the benefits of working for an employer are still the way to go. Job security, company benefits, opportunities for progression, and legal protection all come with being an employee.
If you’re trying to decide between working as an independent contractor or as a company employee, we’ve outlined the differences and weighed up the pros and cons of both to help you decide.
TABLE OF CONTENTS
What is an employee?
Employees are hired by an organization or a company to work under their direction, often with stricter, broader policies. This includes working a set number of hours, which may or may not be flexible across the month, and a fixed salary with statutory benefits, such as paid leave and insurance. Their salary may be based on hourly or annual rates, and is usually paid weekly or monthly, with tax deductions as applicable, as they’re handled by the employer. All these will be based on the contract you’ll have to sign during onboarding, which will outline the terms and conditions of your employment in full detail.
Usually, as an employee, you’re part of a hierarchy of workers, where you can work your way up the ranks and the pay scale. You’ll have a manager to report to, and may even manage other staff or teams, depending on your role. Most employees also work on-site, although hybrid and fully remote positions are also becoming common.
What is an independent contractor?
An independent contractor is someone who offers services to businesses and organizations without being employed by them. This includes consultants or freelancers in a range of fields. As an independent contractor, you control your schedule. You can usually work from a location that suits you if your work can be done remotely, and rather than being under contract, you invoice your clients for your services and are responsible for your own taxes.
You may have heard of gig workers. This is a buzz term for people who freelance. If you’re in the US, this means you need to complete a 1099 form for the IRS, instead of the W2 form that employees typically fill out. In the UK, you must register as a sole trader with HMRC before you
Key differences between employees and independent contractors
For a clearer comparison of the differences between an employee and a contractor, take a look at this table:
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Employee |
Contractor |
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Pay structure |
As an employee, you’l be paid a salary, which is part of a pay scale, and may include annual increments. You can expect a regular paycheck. |
As a contractor, you’re paid for the work you do and usually invoice a business or organization once the work is complete. What you earn can vary from month to month, depending on the work available. |
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Control |
If you’re employed by a company, you have little control over the hours you work and the work you do, as these are outlined in your contract. If you want to schedule annual leave, it must be approved by your employer. |
If you work on a freelance basis, you’re in control of when, where, and how often you work. You choose your clients, and the type of work that’s interesting to you. |
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Taxes |
When you work for a company or organization, your taxes are automatically deducted from your paycheck. |
As an independent contractor, you’re responsible for filing and paying your taxes at the end of each tax year. |
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Benefits |
Depending on who you work for, your contract may come with benefits such as health insurance, employee discounts, company car, sick pay, and annual leave. |
Freelancers are not entitled to any benefits. You’re not covered if you get ill and you don’t get paid for any time off you take. |
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Job security |
Your contract will state how early you should get a notice before your employer terminates your contract, as required by law, and you may be eligible for redeployment or redundancy pay. |
As an independent contractor, an employer can terminate your contract at any time. |
Managing global or remote contract work
As a freelancer or independent contractor, you may be able to pick up international clients. This is especially valuable if you’re able to find work with a company in a country that pays a higher rate than where you’re originally from. However, working with clients abroad can be a little more complicated when it comes to payment logistics, exchange rates, fees, and compliance with tax legislation.
If you’ll be rendering services for an overseas company, look for employers who use workforce management systems that can handle not just remote employees, but independent contractors too. All-in-one global workforce platforms, like Deel, can help independent contractors manage their contracts, automate invoicing, stay compliant, and avoid worker misclassification. Spanning 150+ countries, this means you wouldn’t have to worry about compliance, even if you have multiple clients from different countries.
Stay compliant with DeelPros and cons of being an employee
If you’re still unsure whether being an employee is the best option for you, let’s go over the pros and cons.
Pros:
- Regular salary: As an employee, you know exactly what you’ll be paid and the hours you need to work. Each payday, you’ll receive roughly the same amount, depending on the number of days worked.
- Benefits: Employees receive a range of benefits depending on the company, from basic sick pay and holiday pay to additional benefits, like health insurance, company car, and even equity shares.
Cons:
- Lack of control: Employees work under a binding contract. You have job responsibilities, which you must follow, and hours you must fulfil. You’ll have options for career progression, but salary offers are often fixed. If you want to leave the job, you have to submit your notice within the required period, which is usually 30 days, to allow proper turnover.
- Flexibility: As an employee, your employer gets to decide how many hours you work and which days of the week you must work. You may have some flexibility about whether you work in the office or remotely, but this is still defined by your employer. If you want to take leave, it must be approved by your employer.
Pros and cons of being an independent contractor
Are you thinking independent contracting might be best for you? Here are the pros and cons to weigh up.
Pros:
- Control over terms: As a freelancer, you don’t need to agree to contractual terms, as you have more say over what you’re willing to accept. You set your rates, you present your services — you’re in control. You have no cap on what you can earn, as it depends on the number of projects you can complete.
- Flexibility: Independent contractors have total flexibility. You can decide when you want to work. You can work from a location that suits you most, and you can decide on the services you offer.
Cons:
- Job security: Freelancing can be temperamental. Work isn’t always guaranteed. You may have busy spells where you have more work than you can handle, and other times when work is slow. Your paycheck isn’t consistent. It’s always based on how much work is available.
- No benefits: Independent contractors are not entitled to any of the benefits employees get. You don’t get paid if you’re too ill to come to work, you don’t get holiday pay, and you definitely don’t get benefits like a company car.
Note: If a business owner stipulates your hours and makes you work from their office, this is not freelance, this is simply an employee in disguise, without the added benefits an employee should receive. It may also fall under worker misclassification, which is illegal in most jurisdictions.
Key takeaways
Deciding whether to be employed or work as an independent contractor involves weighing the pros and cons of both. There are benefits and costs to both options, so it really is up to you to decide what’s most important to you. Do you like the idea of having full control over your work and schedule, or is it more important to you that you have a regular paycheck and benefits? Whichever you choose, it’s important to make sure that you know the extent and limits of both your rights and responsibilities.
Streamline your freelance contracts and stay compliant globally — start with Deel today.