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Independent Contractor vs. Consultant: Differences and Job Considerations
Explore the key differences between contractors and consultants, including job roles, expertise, billing, and business considerations for freelancers.
In 2023, 64 million Americans engaged in freelance work, making up 38% of the U.S. workforce. As the demand for freelancers grows, controlling how they present and market themselves to clients is becoming increasingly important. An independent professional can take one of two paths: a consultant or a contractor.
Both job titles can be profitable and allow for a flexible work schedule, with one key difference: A company usually hires a contractor to complete a specific task, while a consultant might have broader responsibilities.
This guide aims to educate you about the roles contractors and consultants play. We’ll go into detail about what each designation entails, how they differ, and how they’re similar.
What is a contractor?
A contractor is a temporary, independent worker hired to do a specific job for a set period of time. A contractor meets with a client to learn about their needs and complete the client’s task. Contractors are self-employed and work for others on a contract basis; the contract ends when they finish the task.
Contractors are temporary workers companies can use for jobs as simple as organizing mail or as complex as developing web applications. Their value depends on their ability to do a certain job and the demand for that job. While contractors generally have less job security than full-time employees, they often have more flexibility in choosing their projects.
Contractors must have suitable technical skills to complete their jobs, but their work only requires a narrow understanding of an industry as a whole. For example, a business owner might contract a copywriter to write emails for their marketing campaign.
To be successful, the copywriter must know how to write effective copy and communicate with readers. However, they might not know how to complete broader marketing tasks, like organizing entire sales funnels or analyzing data to optimize e-commerce.
Some small businesses find that hiring independent contractors through talent networks can be more beneficial than hiring full-time workers. One reason is that independent professionals often have the skills necessary to complete specific tasks.
What is a consultant?
Consultants are independent professionals with many years of experience and broad expertise in an industry. Like contractors, they enjoy self-employment but are hired for big-picture objectives. Many consultants operate their own consulting business, offering a range of consulting services to various clients.
Consultants often meet with businesses to devise a plan and achieve the business’s overarching goals in the most efficient manner. Consultants are problem-solvers focused on improving an organization’s practices through expert advice.
For example, a jewelry company might hire an efficiency consultant to improve its manufacturing processes and cut costs associated with operating its factories. The consultant might spend a fair amount of time analyzing how the company uses its resources to judge what the business can do to save money and boost performance.
The consultant might make a suggestion to improve manufacturing, like encouraging the company to use on-demand production to lower inventory and its associated costs and stay aligned with fashion trends without making obsolescent products.
Independent consultants offer professional advice on how a company can improve its operations, but they leave the work of translating this advice to action for those in more permanent, hands-on positions within the company.
full-stack developer might offer a webinar to show a company how to maximize its customers’ browsing experience. The same developer might then give the company the option to hire them to implement the changes.
Contractor vs. consultant: 4 differences to note for your career
Several differences exist between operating as a contractor and as a consultant. The big difference is that contractors perform work to complete a task, while consultants create solutions to guide a company on conducting its workflow.
We go into some more subtle differences in how the two designations operate.
Suggesting solutions vs. doing the work
Consulting firms show clients new, innovative ways to achieve goals and conquer obstacles that can save money, time, and effort. However, they generally don’t actually do the work to implement their suggested strategies. They simply offer suggestions on how the business can operate at a higher level of efficiency and then step back to let the company make changes.
Contractors do the work their clients need them to do. Their contracts stipulate that they must complete a defined job in the manner their client sees fit. They don’t have control over how a company operates and must work within a business’s current framework.
Experience and expertise
Consultants must have a broad range of experience and expertise in their industry. Clients must feel confident that their consultant knows enough to revamp their entire business processes. Because consultants are tasked with renovating whole systems, they must also stay updated with new technologies that can push a process from the planning phase to the finishing touches.
Contractors don’t need quite as much broad expertise. Their work requires a much more specific skill set than that of a consultant. To do a particular job, a contractor must be highly competent in just one area of a business process.
Project rates, salary, and hourly billing
When it comes to billing for their work, consultants and contractors use different approaches.
Whether it’s billing on an hourly basis or using project-based rates, these methods cater to each profession’s needs and expectations and provide flexibility in how professionals charge clients for their services.
H4: Project basis
Consultants often bill for their work on a project basis. This means the consultant must decide how long a job will take and how much to charge to ensure it’s worth their time.
Consultants often bid on jobs for a client. Project rates can be a bit tricky. A consultant who charges too little may not be viewed as a professional, but one who charges too much could price themself out of a client’s budget.
Hourly basis
Contractors usually bill based on an hourly rate. They’re only hired for a short time while completing specific projects. Sometimes, they’ll create fixed-price invoices based on their labor costs before starting a job for a specified number of hours.
Annual income
Consultants typically earn higher annual incomes than contractors due to their higher level of expertise. Their specialized knowledge and skills enable them to provide valuable insights and strategic recommendations, which justifies their higher pay rates. Although skilled professionals, contractors may not possess the same level of expertise, resulting in lower income expectations.
Taxes
There’s no significant difference in taxes between consultants and contractors. Both are typically considered self-employed and are responsible for paying self-employment taxes to the Internal Revenue Service (IRS).
While consultant and contractor tax obligations and deductions are similar, individual circumstances (e.g., business structure and eligible deductions) can impact their tax liability. Consultants and contractors can work with a tax professional to comply with various tax regulations.
Work portfolio
Consultants are leaders in their field and often have experience as project managers. Businesses trust consultants with their entire operations and, often, their budgets—so they must ensure the consultant is someone with broad industry knowledge who can see the big picture.
Because of this, a consultant’s work portfolio is more than a set of projects. It often includes a collection of metrics showing company improvement over a long period of time versus something more short term.
A consultant’s portfolio might include case studies detailing the long-term impact of their advice, specific examples of process improvements or changes they’ve facilitated, and quantifiable business outcomes like revenue growth, cost savings, or increased market share.
On the other hand, contractors must demonstrate they can complete a task efficiently and effectively. They don’t have to worry as much about the broad organizational picture as they do about demonstrating how their specific skills relate to the task at hand.
A freelance contractor’s portfolio may primarily showcase completed projects. This might include specific deliverables like a piece of software code, a designed website, or a structured marketing campaign, alongside client testimonials highlighting their ability to meet deadlines, adhere to budgets, and provide high-quality results.
Is there a difference between a contractor, a consultant, and a freelancer?
No notable differences exist between contractor, consultant, and freelancer roles. While people might use or perceive these terms differently in different contexts, the essence of the work remains similar.
All three roles involve individuals who work independently, outside the traditional 9-to-5 job, and with the autonomy to be their own boss and choose their projects and clients. The distinction between these terms often depends on how individuals classify themselves and how they present their services to clients.
The key factor lies in the client’s needs, the level of expertise required, and the specific services provided, rather than rigid distinctions between the titles themselves.
Contractor or consultant, Upwork will work for you
Consider your skills, knowledge, and preferences when navigating which direction to take your career. While you might be able to wear both contractor and consultant hats at different times in your career, knowing what each requires can provide greater freedom to operate in your industry.
Upwork is a great place to thrive as an independent professional. Our algorithms highlight projects where your skills could be a great fit while giving you the freedom to work on the projects you choose.
Whether you’re a contractor or consultant, enjoy streamlined hiring and set the terms for your career on Upwork.
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