Let’s first get into legal definition of freelancing vs being an employee. Please note these are just information I learned over the years through research and professional experience in CT, but if you need legal advice, contact your attorney, and check with irs.gov.
Freelancing – aka Independent Contractor aka “Being your own boss.” That’s right– You’re in control of the who, when, where, what and how. You choose your own hours, location, the equipment to use, set your own rates, and method to complete the project. If a company is ordering you to be in the office from x to x o’clock, to report to a manager, how to do your work, or contract you indefinitely under those conditions, then by definition, they are treating you like an employee. Be careful of these companies who may notoriously and illegally take advantage freelancers, likely to avoid having to pay taxes, vacation/employee benefits, worker’s comp., unemployment (if they let you go) and responsibility that they are legally bound to when hiring an employee. You get paid directly by clients and are also completely responsible for paying your own taxes, may receive 1099-MISC, and may hire other contractors/employees. You may also take business deductions from qualified business expenses.
Employee – You work for a someone, a company. You have a boss, and someone to report to. The company tells you the when, where, what and how. You may go through formal interview to get the job. You report to the designated location from x o’clock to x o’clock, use their equipment, and may be trained to use their technique to complete the work way they want it. You get paid holidays and may be paid salary. You may also get employee benefits such vacation, sick leave, personal time, 401k, retirement plans, stock option, performance reviews and raises. They pay the portion of the taxes you normally would if you were independent contractor. You can’t take business deductions off of your tax, however your employer may reimburse you if they decide to or cover travel expenses. If they let you go at no fault of yours, they are responsible for the “pink slip,” unemployment (if you qualify), and COBRA.
Consultant (for Agency) – This is another category all together that I may discuss in depth another time. But this is basically somewhat a hybrid of the two. By law you’re a W-2 Employee for the duration of the project. The Agency helps both you and their client by finding a match. You get interviewed by both Agency, and client. Agency does the reference checks, then when they hires you, pays you, and charges a client a higher rate to make profit. But the difference is that that your doing work for the Agency’s client via telecommuting or on client site. They also treat you like an independent contractor, so you can set your rates and they will try to find clients with a budget that makes them money or negotiate. You have some of the same freedoms as Freelancing.
Do note that some freelancing work needs to be on site for it to be completed (e.g. when you upgrade company’s hardware, or train the office). Of course hours in freelancing are when both what you and your clients are available, aka “appointment”. The type of work the client wants can be explained in depth and as long a the result is what they ask for, it is not concern to them what techniques you use.
I have made several mistakes over the years. Most importantly on rates. It’s due for my nature of not feeling comfortable discussing monetary compensation. What I learned as an independent contractor is that I should set my rates and stick to it. Though each client is different, I shouldn’t be negotiating rates for the same type of work from one client to another. Great example is when going to a spa for a massage service. They post say $95 for 60 minutes. A client typically doesn’t go there and says “How about $20 for 60 minutes… that’s all I can afford.” and the Spa probably wouldn’t want to devalue their services like that either. Instead, the client could choose a shorter more affordable session or shop rates elsewhere.
Another big mistake is signing non-competitive agreement as a freelancer. As a freelancer, you are your own boss, and have the right to do work for whoever you want. Your client doesn’t have authority over you like a employer does and cannot prevent you from making a living. You’re not devoted a full time employee status to your client, and when they tell you who you can’t do work for, and even decide to hire someone else to do your job, you lose business or lose your business. For example, when you hire a contractor to set up your network, you can’t tell them not to set up your competitor’s network.
Another mistake is allowing my client or potential partnership dictate what, when, where, how or even asking permission. That lowers my status as “being my own boss” status of my own services, letting the client have company authority over me. That mistake can give off a less than professional light.. and less respectful companies can take advantage of that without having to be responsible for an employee. Remember that you’re your own boss.. and that means you have authority over yourself.
Another important thing that I didn’t realize as an employee, is that when hours are unexpectedly reduced from full-time to part-time, you may be qualified to collect partial unemployment. Any extra compensation could make a difference between being able to pay your bills or not. Your employer cannot retaliate against that by law, and if they do, you have the right to file complaint. Check with your state’s unemployment office.
One last odd situation I would mention for now is evaluation procedures as a freelancer. If your client is giving you odd quizes or tests that has nothing to do with your services– run. You’ve demonstrated your skills, portfolio, talked to them personally; you’re there to provide them web services, not be examined with psychology tests or be an employee to them.
So those are some of the lessons I learned over the years as a freelancer and employee. You deserve to be respected, know your rights and remember where to draw the line. I could go on, but I’d end up writing a novel, so I’ll probably save it for another time. If you have any questions, feel free to comment or contact me.