Statistics indicate that self-employed individuals tend to earn more and work fewer hours than employees.
However, taking the leap into self-employment can be intimidating, and even the most confident individuals may hesitate. As a result, it's common to wonder about the difference between self-employment and freelance work.
This guide aims to explain both career paths, outlining their advantages and disadvantages, to assist you in making an informed decision.
Use the navigation below to jump to a section:
- What is the definition of self-employment?
- What is the definition of a freelancer?
- What is the differences between freelance and self-employed?
- What are the advantages of freelancing?
- What are the advantages of self-employment?
- What are the disadvantages of self-employment?
- What are the disadvantages of freelancing?
What is the definition of self-employment?
A self-employed person runs their own business, from an SME with hundreds of employed workers to a plumber or electrician with their own van, tools, and clients. They are their own boss and decide what type of work they take on, how much they will be paid, and when they will undertake the work.
What is the definition of a freelancer?
Freelancers are self-employed and, similar to a self-employed person, can set up their own business as a sole trader, as a partnership (if they are going into business with other freelancers) or as a limited liability company.
The term freelancer was first coined by Sir Walter Scott in his famous novel Ivanhoe where he described Italian and French mercenaries as “freelancers”, meaning they were free men who offered their skills and services (in warfare) to wealthy landowners.
What is the differences between freelance and self-employed?
There is often confusion surrounding the terms freelancing and self-employment. Is freelance and self-employed the same? There are several differences between being self-employed and freelancing. To provide clarity on these employment statutes, we’ve outlined these below:
Ways of working
- Self-employed people tend to focus on one type of business, while freelancers can take on several different types of projects
- Freelancers tend to work alone and take on a select number of clients
- Self-employed people often have a team working for them and serving large numbers of customers
Skills and expertise
- Freelancers typically focus on expanding their skills and knowledge to take on complex, high-paying jobs
- On the other hand, as a business owner, self-employed people concentrate on growing their company and adding employees or outsourcing when additional skills are required
Freedom and flexibility
- Although freelancers have much control over their hours and paid time, they generally take their clients' instructions on how the work is done and the expected results
- A self-employed person develops the product or service they are selling with little or no outside influence
Some people falsely perceive freelancers as less serious than self-employed people. Freelancers specialise in their chosen profession and spend time and money on advancing their skills. Freelancers and the self-employed are equally determined to deliver the best results for their clients/customers, make a profit, and stay ahead of the competition. However, freelancers are usually content to remain micro businesses, whereas self-employed people are often driven by growth.
What are the advantages of freelancing?
The main benefits of freelancing are:
- Flexibility
- Variety of work
- Specilisation
- Higher earning potential
- Remote working
- Network of opportunities
Flexibility
Freelancers set their own hours and choose their projects and clients. The more established they become in their market, the choosier they can be.
Variety of work
Because they can pick and choose their projects, freelancing is never dull. A freelancing business means running a company which requires you to learn several different skill sets, such as marketing, sales, finance, and operations
Specilisation
Freelancers are often enormously respected and at the top of their game when it comes to delivering high-quality work.
Higher earning potential
There is no limit to how much a freelancer can earn, you can take on as much work as you can fulfil and collaborate with more freelancers if you need support.
Remote working
Freelance work is usually done at home, although many freelancers prefer to meet with their clients personally, thereby adding variety to their workdays. Freelancers can also (mostly) work from anywhere in the world, making becoming a digital nomad a real possibility as opposed to a dream.
Network of opportunities
If an employee loses their job, their entire income evaporates. Freelancers, on the other hand, have multiple clients. Therefore, as long as they manage their cashflow correctly (by not having a small set of clients making up most of their income) if one client goes, it is not a financial catastrophe
What are the advantages of self-employment?
The key advantages of freelancing are:
- Autonomy
- Creative control
- Earning potential
- Collaboration opportunities
- Business growth
Autonomy
Self-employment means a person is in total control of their business, from how the products are developed, to the working culture, to when and how they work.
Creative control
Self-employed people have full creative control over their products and/or services. They can run their business however they like and grow it as they see fit.
Earning potential
There is no limit to how much a self-employed person can earn, and they can choose to grow their business to the size that satisfies their commercial ambitions.
Collaboration opportunities
Certain parts of specific projects can be outsourced to people who are specialists in their field, i.e. freelancers and independent contractors.
Business growth
Self-employed people get to expand and nurture their business networks, opening doors to further opportunities.
What are the disadvantages of freelancing?
Freelancing is incredibly fun, rewarding, and flexible, but challenges are involved, including:
- Maintaining cashflow
- Complying with IR35
- Liable for business debts
- Requires drive and resilience
Maintaining cashflow
Maintaining a healthy cashflow can be a constant challenge. Strict planning is required to avoid income peaks and troughs.
Complying with IR35
IR35, or the 'off-payroll working rules', is a piece of legislation introduced to ensure contractors (freelancers) providing services through their own companies, or another intermediary, pay the same amount of income tax and National Insurance (NI) as an employee would. IR35 can be a complex area of business law, so it’s best to seek advice and read up about IR35 legislation.
Liable for business debts
Depending on how the business is structured, i.e sole trader, partnership, limited liability partnership, or limited liability company, a freelancer may be 100% liable for business debts and contractual obligations.
Requires drive and resilience
Working alone means freelancers need to be extremely self-motivating and be able to manage their emotions when it comes to client criticisms.
What are the disadvantages of self employment?
Self employment allows you more autonomy and flexibility but disadvantages include:
- Complete accountability
- Requires people management skills
Complete accountability
A self-employed person or freelancer is ultimately responsible for their business. No boss can take over if things become tricky or a dispute develops.
Requires people management skills
Additional resources in the form of freelancers, contractors, or employees usually are required to meet customer demands, manufacture products, and grow the business. Therefore, the ability to manage people and suppliers is a must-have skill, and this element of self-employment can be stressful
Get legal assistance from LawBite
We understand the challenges that freelancers and self-employed individuals face in starting and managing their businesses. With years of experience helping small companies, startups and sole traders on employment law-related matters, LawBite can provide you with the expert guidance you need to succeed.
Whether you need advice on getting your consultancy contracts in shape or general guidance on freelancing or self-employment, our team of expert lawyers can help. To find out more book a free 15 minute consultation or call us on 020 3808 8314.
Additional resources
- What is a Statement of Work?
- What is a Service Level Agreement (SLA)?
- What documents are required for registering a company?
- What is a cash flow forecast?
- Can you use a personal bank account for your business?
- What is Professional Indemnity Insurance (PII)?
- How to create a budget plan for a business
