What Makes Freelancing Different from Being Self-Employed?

Freelancers are self-employed individuals, but there are some nuances to the matter. Freelancers often take on multiple clients and have greater freedom in accepting work. 

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A combination of demographic changes and, more recently, a post-COVID employment outlook, has pushed "irregular" working to the forefront of the Human Resources agenda. People find less comfort in working a regular '9-to-5’ job. 

Others have little interest in being an employee or working for an organisation.

Freelancing and self-employment are two common forms of taking control over the working day but it's easy to confuse one term for the other, so we're going to clarify things for you. (Both conceptually and legally!)

What does it mean to be a freelancer?

Fiverr now provides more than just $5 gigs; it's become a serious marketplace for freelancers.

The first and most important point to make here is that all freelancers are self-employed but not all self-employed individuals are freelancers.

This is the key distinction to make.

In recent years, freelancing has gone hand-in-hand with the rise of the gig and the creator economy (or the less common side-hustle).

Freelancers might compete or bid for work which is occasional, infrequent, or without any guarantee of it becoming regular income.

Freelancers might compete or bid for work which is occasional, infrequent, or without any guarantee of it becoming regular income.

Such work is service-based, where the client requests a task or project, and it is up to the freelancer to deliver it.

This suits most freelancers down to the ground as they have a large degree of control over what work they accept, as well as their availability to work. 

On the flip side, freelancers work on behalf of clients and must take instructions from multiple people or organisations, rather than purely working for their own cause.

Related to this is the notion that freelancers often work alone, whereas self-employed individuals might sometimes hire a helper, or even a team.

Freelancers are likelier to go it alone, working for themselves without any of the worry or baggage of being an employer.

What does it mean to be self-employed?

Sometimes keeping it small is done on purpose so that there's no "rush" in a process.

Although being self-employed can mean that you are a freelancer too, being self-employed often translates to having a greater control over the work you do. 

The clearest difference between freelance and self-employed is not being at the behest of multiple clients and their various and disparate requests. 

Self-employed people are more likely to have a singular, service- or product-based process being consolidated into a business which is their own and have the capacity to scale as they go rather than having to "go with the flow" with various requests.

Freelancers on Fiverr can take on as many orders at a time as they want.

Self-employed people might nurture a stronger, loyalty-based relationship with their customers, focusing their delivery on repeat business through building intent to return and long-lasting customer relationships.

The point about scalability is also key to understanding self-employed individuals. A self-employed person’s business can more easily be scaled and grown. 

The point about scalability is also key to understanding self-employed individuals. A self-employed person’s business can more easily be scaled. 

This is not to say that freelancing isn’t the same (an effective freelancer can grow their client base and become as equally successful as self-employed people) but scaling freelancing work will at some point mean that the business model becomes formalised, more organised and therefore increasingly similar to typical self-employment.

Patterns of self-employment vs freelance work

Seeing as the differences between freelance and self-employed are so blurry, here is a simple analogy to provide context.

Freelancers often sell services, whereas self-employed individuals tend to sell products as well. Let's use a small eCommerce shop for jewellery as an example.

Freelancers often sell services, whereas self-employed individuals tend to sell products as well. Let's use a small eCommerce shop for jewellery as an example.

A freelance jewellery designer is commissioned by a client to design a ring. The service is in the design and the process, from conception to delivery.

The freelancer designs or crafts the ring, delivers it to the client, and gets paid. 

A self-employed jewellery designer will not have such a commission in place beforehand. They will design and craft the ring, and then look for a buyer.

Someone buys it, then the self-employed individual gets paid. The self-employed designer is selling a set, defined product that's made via their own process.

Do freelance and self-employed definitions change based on where you live?

The UK government recognizes both freelancers and self-employed people as sole traders.

In the UK, the terms ‘freelancer’ and ‘self-employed’ are well-understood, but for tax purposes, both are covered under the term ‘sole trader’, whereby you are essentially working for yourself.

If you are a sole trader, then you will be taxed outside the standard employee tax system, known in the U.K. as ‘Pay As You Earn’, or PAYE. 

In the UK, the sole trader is taxed on their profits, not their income. If these profits total less that £12,500 in one year, then no tax is payable at all. There are no differences between being freelance and self-employed in terms of the legal status of either.

Legal considerations about location

The main considerations are regarding the difference between identifying as a sole trader or a limited company (which either a freelancer or a self-employed individual can start), and even these differences only result in tax considerations.

In the US, the terms ‘freelancer’ and ‘independent contractor’ can be used interchangeably, although the former implies engaging with multiple clients all at the same time with a high degree of fluidity in designation, such as artist or writer.

In the US, there is an implicit feeling that freelancers are less capable of calling the shots. Self-employed individuals hold their own process and have control and legal ownership over it. Freelancers might have the same, but it is less likely.

In the US, there is an implicit feeling that freelancers are less capable of calling the shots. Self-employed individuals hold their own process and have control and legal ownership over it. Freelancers might have the same, but it is less likely.

Being an independent contractor implies working with one client in a more steady, long-term capacity, with a formal job designation such as doctor, dentist, or lawyer.

In both situations, there are no taxation differences. Both require the individual to set themselves up as effectively starting their own business, and paying, in addition to regular tax, self-employment tax of 15.3%, thus covering Social Security and Medicare. 

Why consider the differences between the two?

Aside from tax or ownership implications, the main question you must ask yourself when considering differences between freelance and self-employed is that of identity. 

Both freelancers and self-employed people have a higher degree of control compared to an employee, with freelancers having greater control over their contracts and self-employed individuals benefiting from greater control over their process.

Freelance vs self-employed: it's all about identity

If the idea of being at the beck and call of client, delivering work or projects that you may not be completely emotionally invested in seems worrying or disenchanting, then freelancing probably isn’t for you.

Set up a business, become self-employed, and follow that dream. 

Others find beginning their journey as a freelancer and then ‘mutating’ into self-employment is the best way to go.

A freelance author, for example, might start off collecting commissions and writing about a wide variety of topics at the request of his or her client.

As their reputation grows, they might decide to write their own book. With a defined product and demonstrable legal rights, they have effectively become self-employed. 

The positioning of freelance vs self-employed individuals

A final point with the difference between freelance and being self-employed is the marketability of both terms.

Freelancing, despite gaining traction in recent years as a flexible and credible way to earn a living, still carries connotations of being a less serious way of working. 

All too often we see jokes, TV shows or cartoons where the freelancer character is sitting around, not working or waiting for the client who invariably, never arrives. 

Of course, this is false, as freelancing can be an extremely lucrative career, an efficient way to earn a second income and, in some cases, a path to stable, long-term success.

Freelance or self-employed? Choose what works for your identity and line of business

Coretal is a platform for both freelancers and self-employed people to get the best of their work. Select an Image

Despite there being many similarities between freelancing and self-employment, if you're unsure which side of the fence to sit on, then it might help to consider a few things. Think first about where your passions lie 

• Are you energised by working with many clients? 

» Then start freelancing. 

• Do you have a scalable, exponential dream that might require greater organisation? 

» Then start with freelancing and grow to become self-employed. 

• Do you have a clear process that can be turned into repeatable business? 

» Then you are better off being self-employed. 

Freelancers can pick and choose their clients, whereas self-employed individuals can run their own business in their own way but will have to take on all "ideal" customers.

The common thread is that both provide freedom from being the cog in the mechanism of a larger organization.

For many, simply being one’s own boss is the greatest advantage of all. 

Originally published Apr 30 2021

Frequently asked questions

Is freelance the same as self-employed?

There are many similarities, but freelancers might juggle more clients and focus more on service delivery. Self-employed individuals will focus more on product delivery and scaling business as a formal, long-term concern.

Do freelancers have to register as self-employed?

Freelancers do not legally have to register as self-employed. However, for tax reasons, freelancers should register as being self-employed as in the US, self-employment tax is payable. In the UK, freelancers should register as a sole trader when their profit reaches £12,500 in a given tax year.

What qualifies as a freelancer?

There are few legal definitions of a freelancer, but a freelancer will not be bound to running a business in the same way as a self-employed individual will. Freelancers work for themselves, with multiple clients, and at their own speed and work preference.

What qualifies as self-employed?

Self-employed individuals are likely to be set up as a business, with a scalable, formal business plan based on products that are being sold to customers.