Freelance vs. Contract Work: Basics and Differences

Many people find that freelancing or independent contracting offers more flexibility and suits their lifestyle better than being a full-time employee. Companies can broaden their talent pool and hire experts for projects and save resources by using independent professionals. Working as an independent professional can look different depending on whether you’re a freelancer or a contractor.

Whether you want to become an independent professional or are looking to hire one, make sure you know how freelancing is different from being an independent contractor. Freelancers work on their own terms, creating their schedules and finding clients. Contractors have fixed-term contracts through their employer or a third-party agency. Compared to full-time employees, freelancers and independent contractors control how, when, and often where they do their jobs as long as they meet their deadlines.

Learn more about how freelance and contract independent professionals are similar and different, from worker classification to the types of work they do.

Table of Contents

• The basics of freelancing
• The basics of contracting
• Freelance vs. contract work
• Which is right for you?

The basics of freelancing

From the start of the COVID-19 pandemic, companies had to rethink their work-from-home policies and shift their operational strategies. As pandemic lockdowns came to an end, many employees didn't want to return to the office and instead decided to offer their services directly to clients as freelancers.

Employers could expand their workforce with remote talent, scale up and down as needed, and fill skills gaps by hiring freelancers. This created a lasting shift in the market, with freelancing becoming more normalized as a sustainable career and an integral part of the workforce. In the U.S., 60 million people (39% of professionals) freelanced in 2022, a 3% increase from 2021.

Freelancers are independent professionals who provide their services to individual clients through Upwork or an individual company directly. Unlike employees, freelancers typically work for more than one client and do specific jobs, like writing articles or creating brand logos. Freelancers charge hourly, by the project, or on a retainer for set deliverables.

A client may need only a single project, like a website or a certain number of social media posts, but if the client enjoys working with a freelancer, they may decide to offer more work. Depending on the types of services a freelancer offers, they may do a lot of one-off projects, such as crafting a resume or setting up a Shopify site, or provide ongoing work for a client, like doing data entry or creating social media ads.

The basics of contracting

Companies hire independent contractors to do a specific job over a set period. Contractors are independent professionals with a particular set of skills, like freelancers, but are often broader and more position-based. The main difference is they typically work for a single company for the duration of their contract. Independent contracting is a great way to gain experience and get your foot in the door at a company where you might like to be a full-time employee eventually.

Some independent professionals prefer working on contracts for stability, and if the contract isn't full time, they can freelance on the side. Compared to freelancing, which is remote unless travel is necessary, companies can require independent contractors to work on-site and set specific working hours if relevant to the job.

Many companies open contract roles to test-drive positions that may become full time down the road. A big tech company may open a new role and start it as a six-month contract and give a full-time offer after the contract ends.

Tip: Contract-to-hire is an option on Upwork if a company enjoys working with a freelancer and would like to offer them a full-time role.

Contracting is also popular when departments haven’t finalized budgets yet, but a role is needed to be filled urgently. Independent contractors can work full time, but do not legally require benefits as an employee would. Some companies give certain benefits to full-time contractors to attract top talent.

Let's say the marketing department needs a new graphic designer but doesn't have the budget secured or the approval for a full-time hire. They could agree to a three- or six-month contract and then offer a full-time position at the end of the contract once they have the budget secured.

Freelance vs. contract work

Becoming a freelancer or an independent contractor can help you take control over your career, choosing what clients to work with and what projects to work on. Employers can hire the best talent that is highly specialized in exactly what they need for each project. Knowing the similarities and differences between freelancing vs. contracting can help you figure out what's best for your situation, whether you're an independent professional who wants to take your career in a different direction or an employer looking to level up your workforce.

Four similarities

Comparing freelancers and independent contractors may initially seem confusing, especially since they’re classified the same by the Internal Revenue Service (IRS). In the United States, the IRS has two worker classifications: employee and independent contractor. When comparing independent contract vs. freelance, these two types of independent professionals overlap and have key similarities.

Taxing

The IRS sees both freelancers and independent contractors as self-employed contractors; anyone who hires them must report payments to them above a minimum annual threshold using a 1099-NEC (nonemployee compensation) form. A full-time employee has a W-2 that automatically withholds payroll taxes (e.g., social security, income tax, and Medicare). Independent contractors have to file their own taxes and pay their self-employment and income taxes from what they make each year. Freelancers and can get help from independent tax preparers on Upwork.

Tip: Freelancers on Upwork can use Catch to automate withholdings from their earnings so they can easily save for taxes and other expenses.

Ownership of tools

You decide when and where you do your work as a freelancer or a contractor. Some types of contract work could have set hours like customer service, but often the work can be remote, allowing you to contribute from where you choose during the hours that work best for you. You provide your services to a client or employer that you're under a contract with, but use your own equipment such as your computer. Contractors and freelancers are generally responsible for providing the tools they need to be successful, whether it's hardware, software, or training.

Managing expenses

Both freelancers and contractors are responsible for work-related expenses. If you need a computer, phone, office equipment, or software to do your work, it's up to you to purchase it. Clients are also not responsible for reimbursing any travel.

As a freelancer and independent contractor, these business expenses may be deductible in your taxes, but you must account for these additional costs as you’re crafting proposals and negotiating contracts. Some clients may give temporary access to their internal tools and software necessary for the project, especially items that are accessible only with a company license.

Benefits

Companies don’t legally have to offer benefits to freelancers and independent contractors, even if they work 30 hours or more per week, which is considered "full time," according to the IRS. As more companies want to bring on the best independent talent, many choose to offer some elements of health care, dental, and vision coverage, retirement savings plans, educational resources, corporate discounts, voluntary worker-paid benefits, or holiday pay, even though they’re not legally required to do so.

Tip: Freelancers on Upwork can also access benefits like health care and retirement planning through Catch.

Six differences

Freelancers are technically independent contractors but freelancing typically looks very different from contracting. Compared to independent contractors, freelancers are often more highly specialized, even experts in their field. Instead of offering a wide variety of services, they choose just a few and work hard to be the best. Companies hire freelancers for their highly specialized skills, which current in-house teams may lack.

Schedule

One of the main reasons workers turn to freelancing or contracting is control over their schedules. Freelancers submit proposals and accept or decline client projects based on their workload. They decide what projects to take on and when they're working.

Freelancers can get paid hourly and track and submit their hours, but while a client could propose a job that requires set hours, it's up to the freelancer to accept. Depending on the contract, an independent contractor may only work for a single client and need to be available during business hours and attend meetings.

Hiring process

Clients can book a freelancer's services in a variety of ways. A freelancer could submit a proposal for a job and have it accepted without an interview, just a few messages back and forth, or it may be a more formal process with multiple video interviews. Companies looking to hire freelancers can use a platform like Upwork to post jobs and find the perfect candidate.

Independent contractors often fill specific roles, and the engagement is typically longer term and more hours. Hiring a contractor can feel more like conducting an employee interview and take longer to onboard and create a formal contract. Businesses may need to work through an agency to handle the logistics of hiring independent contractors, which can add extra steps and costs.

Tip: If you want to hire an independent contractor, Any Hire takes care of all of the compliance required to bring an independent contractor to your team.

Kind of work

Freelancers are highly specialized experts in their fields. Businesses work with freelancers to fill specific skills gaps. Independent contractors are more likely to fill a role than to be hired for a one-off or short-term project. A company might hire an independent contractor to be a full-time social media manager for three months or a freelancer to create three months' worth of social media content. Depending on the work a freelancer does, they may work only once with each client, if they don’t have a repeated need for the service.

Way of working

Both freelancers and independent contractors control how they get their work done. Compared to freelancers who work remotely unless they must go on-site or travel for the project, some independent contractors are on-site part time or even full time. Because freelancers typically work for multiple clients at once, having a schedule full of on-site meetings would be difficult. Independent contractors, unless they have a part-time contract, typically work for only one client at a time and can dedicate all of their workweek to that client.

A company may need someone in-office, at the front desk, during the company's working hours from nine to five Monday through Friday to answer customer calls or provide tech support – this would be an independent contractor. While independent contracting can be remote, some contracts require being on-site to use company tools. The same company could want a new website and look into hiring an outside developer. If the job is remote and the talent can determine how and where they work on it as long as they meet their deadlines – this would be a freelancer.

Rates

The rates and how payment works for an independent contractor vs. freelance depend on whether a platform or agency is involved. Many independent contractors choose to work with an agency. The company will first talk with the agency to determine the contract's budget. The rate is established before the agency or company posts the job.

Freelancers set their rates and often submit proposals to clients through Upwork or directly pitch their services to prospective companies. When companies post a job on Upwork, they can put a target range for the hourly or project rate. Then freelancers can submit their proposals with what they think is fair to charge based on their experience, expertise, and understanding of competitive pricing for these types of services.

A freelancer's rate may change from project to project depending on what's needed, but they often have an average rate they use as a baseline. Many freelancers prefer to work on a platform like Upwork, where everything from proposals to client communication and payment is in one place.

Length of project

Compared to an independent contract with a set start and end date (which can be extended or transition to contract-to-hire), freelancers generally have more flexibility and variance in the project length. Short-term and single projects are often preferable to freelancers who work with multiple clients.

Contractors give all of their time (or a significant portion of their working hours) to a single client and may prefer the security of a longer contract so they don't have to seek out new projects and queue clients actively. Typically companies turn to independent contractors when they know they need longer-term engagement, anywhere from three to six or even 12 months.

Which is right for you?

Two questions that come up frequently are: Is freelance or contract better? Freelancing vs. contracting as an independent professional depends on the type of work you do, your work style, and the client. On the client side, it depends on how much time you want the talent to spend on your project and the level of autonomy they will have.

If you're hiring

Independent professionals have the unique skills that you need to complete a project. As a business, you can fill critical skills gaps with remote freelancers or contractors from anywhere in the world. The future of work is changing, and companies are rethinking how they build their businesses. Flexible talent are available when you need them and let you accomplish things you never thought were possible.

Benefits of working with freelancers

• Work with the best talent from all over the world
• Hire by project and skill as needed
• Achieve fast onboarding and availability
• Easily post jobs and find freelancers on Upwork
• Reduce risk, as you can scale your workforce down as needed
• Require less supervision, as freelancers know how to work independently
• Sustain high quality because freelancers are self-employed, with their businesses built on positive reviews and repeat clients

Benefits of working with contractors

• Test-drive new roles and potential hires as contractors before going full time
• Hire workers seasonally
• Available full-time and in-office depending on the contract
• Option to hire as a full-time employee once the contract ends
• Expand your team to include the best remote talent globally
• Set contracts for fixed longer-term durations based on company needs

Should I hire a freelancer or an independent contractor?

‍

If you're looking for work

Those looking to become independent professionals can work as freelancers or contractors. Freelancers have the most freedom by working remotely and setting their own schedules. They work directly with clients and choose which projects to accept. Independent contractors have more stability by signing a contract to work primarily with one client for a fixed amount of time. They may need to work on-site and have set working hours but know they're employed for the length of their contract.

Benefits of working as a freelancer

• Get to be highly specialized and do exactly what you love
• Can work in a variety of industries
• Able to travel and work remotely
• Create your own schedule
• You’re self-employed and in control of what projects you say yes to
• Can specialize and become an expert in your field

Benefits of working as an independent contractor

• Can see what it's like to work for companies in different industries
• Secure employment for the contract length
• May have the option to become an employee after the contract ends
• Work as part of a team within a company
• Some companies offer certain benefits to full-time contractors

Let Upwork help

Upwork is the world’s work marketplace, where independent talent and clients meet and build meaningful relationships. Freelancers can do exactly what they love and close skills gaps for clients who need experts to work on their projects. If you’re looking to freelance, browse projects that meet your skillset and submit proposals to the ones that excite you the most.

If you're a company that has a project you need help with, find the right freelancer for the job. If you love your current talent, bring them to Upwork with Any Hire, so all of your contractors and freelancers are in one place. This is the future of work, and Upwork is where it all happens.