Freelancer vs Employee vs Contractor: What’s The Difference?

employee classification: freelance vs employee vs contractor


author photo

Freelancers, employees, and independent contractors can all perform the same tasks. For example, a tax accountant prepares tax returns, balances books, and updates financial ledgers. However, a freelance accountant is not the same as an employee accountant.

While it might seem like a matter of semantics, job classification is an incredibly important aspect of any employment arrangement. When you’re searching for a job, not understanding the differences between a freelancer, independent contractor, and employee could make a huge impact on your taxes, your benefits, and your salary.

Job Classification Matters

While many people likely understand the difference between employee and freelancer, it’s an important distinction that, at times, gets fuzzy. And while the terms freelancer and independent contractor are often used interchangeably, they are not exactly the same thing.

Though there are many ways to define your professional self (solopreneur, sole proprietor, freelancer) when it comes to definitions, the only ones that matter is the ones the IRS makes.

The IRS classifies your employment status based on the relationship with your employer. While it is technically an employer’s responsibility to classify you correctly, it is still important that you understand how the IRS defines these classifications. And it is just as important that you understand how your employer classifies you.

When it comes to taxes, the IRS lumps independent contractors and freelancers into one group (which they call independent contractors). That said, there are some distinct differences between employees and independent contractors (freelancers) of any stripe.

Employee vs. Independent Contractor

In any employment relationship, the IRS examines three things to help it determine if you are an employee or an independent contractor. Those are:

  • Behavioral control: who decides when, where, and how you work?
  • Financial control: who controls and directs the financial and business aspects of your job?
  • Relationship control: does the employer provide benefits, and is there an end date to the employment?

So, what exactly does all this mean?

According to the IRS, you’re an employee if:

  • Your employer decides when, where, and how you work. For example, your employer tells you you have to be at an office every day (or online) during primary business hours, provides you with a laptop to do your job, and tells you exactly how to do your job.
  • Your employer decides how much to pay you, how much of a raise or bonus you get, and reimburses you for job-related expenses.
  • Your employer provides benefits (like retirement and health insurance) and expects you to work at the company until you either quit or are terminated.

An independent contractor, on the other hand, has an entirely different relationship with their employer. You’re an independent contractor when:

  • You get to decide when, where, and how you work without any constraints (with some exceptions).
  • You set your own rates and choose who you want to work for.
  • You don’t get any benefits and have a specified end-date (meaning, when the project is complete, you are no longer working for the employer).

This, of course, only scratches the employee classification surface, but it highlights some of the main differences between employers and independent contractors. And if you’re confused by this, you’re not alone. Different states have grappled with the vagueness of these definitions and guidelines for years. Some states have even tried to define employee versus contractor status through legislation with various degrees of success.

Independent Contractor vs. Freelancer

While the IRS lumps independent contractors and freelancers into one group for tax purposes, there is an important distinction between the two job classifications (though it is not tax-related).

To quote the IRS, someone is an independent contractor when they’re “in an independent trade, business, or profession in which they offer their services to the general public.”

Which means?

The IRS lists certain professions as independent contractor examples. Doctors, dentists, lawyers, and auctioneers are all included, but temporary employees are also an example.

Most independent contractors usually work for one company at a time. However, an independent contractor may take on a few clients at a time. The projects the independent contractor accepts are usually long term and large. For example, a contractor may take on your home improvement project. But, it’s only one of three projects that person is working on, and when your project is complete in six or nine months, the contractor moves on from your project to a different one.

Freelancers, on the other hand, work for as many clients as they can handle at a time. The projects they work on are usually small or have short time frames. A freelancer may do one project, then move on to another employer or multiple employers. That said, it is possible for freelance arrangements to be ongoing.

Who Takes Care of What?

Those are the “big” differences between employees, freelancers, and independent contractors. But there are several important aspects of the different employment statuses and job classifications that you should be aware of before accepting an offer.



Employers take care of all aspects of an employee’s taxes, including withholding the correct amounts of taxes owed before issuing paychecks to employees and sending the appropriate amount on the employee’s behalf to the IRS.

Freelancers and Contractors

Freelancers are responsible for paying their own income tax and self-employment tax. And that doesn’t just mean sending in a check on April 15th every year. Depending on how much you expect to earn, freelancers have to pay estimated quarterly taxes, too. Failure to do so could result in fines and penalties. However, one benefit of filing as an independent contractor is the tax write-offs, such as a home office deduction and other related business expenses.



Most jobs offer employee benefits like retirement plans and paid time off. In some cases, your employer is required to offer health insurance, unpaid leave, and even paid leave to employees. And many employers go above and beyond offering life insurance, disability insurance, and even pet insurance. While you may have to pay for a portion of your benefits (like health insurance), your employer is most likely covering some of the costs.

Freelancers and Contractors

Freelancers and contractors are responsible for their own medical insurance and retirement plan. They do not receive paid vacation, maternity leave, holidays, or sick days. Thus, freelancers act as their own HR department and must become adept at financial planning and time-management matters and must fund all of those benefits without their employer’s help.

Unemployment and Workers Comp


When you are an employee, your employer is required to have worker’s comp insurance and to pay unemployment taxes to the state. If you are injured while on the job, or you are laid off, you may have the right to collect cash benefits from the state.

Freelancers and Contractors

If you’re injured on the job, or your employer decides to terminate your services one day, you’re out of luck. You are not entitled to collect anything from the unemployment office.

Finding More Work


Regardless of performance (good and bad), employees can still expect to get paid if they show up (or log in). Performance issues aside, employees will always have a job to go to until they are told otherwise. And if they are laid off, employees usually have plenty of advance notice and possibly access to job placement assistance or a severance.

Freelancers and Contractors

Because a freelancer’s career depends on keeping a steady stream of income, they need to think about future projects while completing the work at hand. If a freelancer isn’t able to balance working on current projects while simultaneously searching for new work at the same time, they could find themselves without any more work lined up. Freelancers have short-term goals of finishing a project, getting paid, and moving onto the next job. There are some exceptions, but this is why working as a freelancer requires a delicate balance of tending to one’s current projects and always keeping one eye on the future.

Schedules and Flexibility


While flexible and remote work is on the rise, as an employee, you usually don’t have much—if any—control over your schedule. For example, if the job requires a nine-to-five presence, that’s when you’re expected to work.

Freelancers and Contractors

Freelancers have the type of flexible schedules employees often envy. As a freelancer, you have nearly complete control over your schedule.

Money Matters


As a rule, employees don’t get much say over their salary, raise, or bonus. While you might get a larger bonus if you perform more or hit certain goals, in the end, it’s really the employer who decides what you get since they determine the bonus schedule.

Freelancers and Contractors

Freelances and contractors are free to set their own rates. They can charge more or accept less if they choose. But they have complete control over their fees. That said, it doesn’t mean that everybody will accept them.



It’s against the law to not pay employees. If the worst were to happen and you did not receive your paycheck from your employer, you can usually enlist the aid of your state’s labor department to help you recover unpaid wages.

Freelancers and Contractors

If a client doesn’t pay, you might be out of luck, short of a lawsuit. And while a good contract can help protect you, that’s still no guarantee you’ll be paid.



As an employee, you should receive regular feedback on your performance. Even if it’s not regular feedback, you probably get an evaluation once a year. While your employer is not legally required to conduct an evaluation, most employers will provide you with one to help you learn and grow as an employee and a professional.

Freelancers and Contractors

In general, freelancers and contractors won’t receive feedback, let alone a formal evaluation. While you and your employer may discuss how the project is progressing, they won’t provide you with constructive criticism to train or teach you. The expectation is that you already know what you’re doing and don’t need any mentoring.

Who You Work For


As an employee, you’re limited here. You work for the company that employs you.

Freelancers and Contractors

You’re your own boss. That said, there may be clients or companies that you work with that you don’t have a good relationship with. Whatever it is, you always have the option of terminating your work agreement with them and walking away. But just know that you’re in charge of managing those processes.

Understanding Your Job Classification

The relationship you have with your employer impacts how you pay taxes (and how much you pay), whether you have certain protections, and can even protect your paycheck. While understanding the differences is important, before you accept any job offer, make sure you’re clear on your employment status before your first day of work.

No matter what kind of employment relationship you’re looking for, we’ve got all sorts of advice to help you figure things out. Read up on tips and tricks for finding a job,  and learn what it takes to be a successful freelancer.

Regardless of the types of opportunities you’re looking for, FlexJobs can help. We offer career options (full-time, part-time, freelance, contract) in more than 50 different career categories. And, all of our jobs are fully vetted and verified. Not a member? Take the tour and learn more!

Tour FlexJobs Now >>>

Beth Braccio Hering contributed to this article

Photo Credit:

Originally published September 23, 2014 and previously updated September 12, 2017. 

Don’t forget to share this article with friends!

author photo



Source link

Author: admin