Contractor or freelancer? What’s the difference?

The words “freelancer” and “contractor” are often used interchangeably, but they describe quite different ways of independent working.

Over the past decade (and a half), the growing needs of businesses to hire flexible workers, coupled with the massive communication boom provided by the web, have resulted in a freelancing boom in the UK.

There are likely to be well over one million ‘freelancers’ working in the UK, and hundreds of millions working overseas.

However, the term ‘freelancer’ seems to be increasingly used within the contracting industry as a sort of ‘catch-all’ term for any independent worker.

In reality, the two terms refer to quite different types of workers.

Working style: one client vs many

As the name suggests, ‘contractors’ typically work for a single client at any one time, usually on the client’s premises.

Freelancers are far more likely to work for multiple clients at any given time and typically work from home.

How clients engage contractors vs freelancers

Businesses typically hire contractors on fixed-term contracts via recruitment agencies or directly by the end-client.

Freelancers are less likely to be hired in this way, and may be used on an ad hoc basis, or to complete a single task.

Business structures and tax

There are significant differences in the business structures used by each set of professionals.

All contractors work on a business-to-business basis with clients, whether via an agency or otherwise.

Clients will not employ contractors as sole traders; they must operate through their own limited companies or via an umbrella organisation.

Aside from the higher tax liabilities you have if you operate as a sole trader, the Income Tax (Earnings and Pensions) Act 2003 puts an obligation on the hirer to ensure that the contractors’ tax liabilities are met.

This is a responsibility that recruiters often prefer not to bear.

On the other hand, self-employment is the most common business structure used by freelancers. As a sole trader, a freelancer’s business and personal finances are combined, and a separate incorporated structure is not typically required in most cases.

This isn’t to say that freelancers don’t use limited companies, but there is rarely a legal requirement to do so.

Culture and mindset

Aside from these technical differences, there is also a difference in mindset.

You will rarely find an IT contractor describe himself as a freelancer and vice versa.

In our industry, recruitment agencies and IT job boards primarily cater to the IT contracting market, rather than freelancers.

The rise of freelancing platforms (and personal networks)

In recent years, we’ve seen the rapid rise of platforms like Upwork, Fiverr and PeoplePerHour

This has created a global marketplace for workers to find clients, often for smaller, one-off jobs.

However, in the UK, most freelancers still secure most of their work through more traditional channels, such as word of mouth, referrals, repeat clients, or by harnessing the power of LinkedIn or personal websites.

In the long run, long-term relationships with perhaps a handful of clients often prove more valuable than any online profile or rating system.

While the big platforms have helped shape what people think of when they hear “freelancer”, they’re just one piece of the picture – and often more relevant to global, gig-style work than traditional freelance careers in areas like design, writing or tech.

Contractor vs freelancer: key differences

Who tends to earn more?

There isn’t an obvious answer to this question, as your earnings are highly dependent on your skills, the target market, and your location.

That said, contractors working in fields such as IT, finance, or engineering can usually command higher daily rates than freelancers.

This is partly because contracts are usually longer, come through agencies, and may involve more responsibility or risk (particularly if IR35 applies).

Freelancers tend to work on shorter projects, often juggling multiple clients simultaneously. Those who work through global platforms may find themselves under pressure to lower their prices, especially when competing with overseas providers.

But at the other end of the scale, experienced freelancers with specialist skills and a strong personal network can do very well -sometimes earning more than a contractor in the same niche.

What about employment rights?

Employment status in this space is nuanced and depends entirely on how you’re engaged.

If you work via an umbrella company, you’re classed as an employee of that umbrella provider. You are technically entitled to statutory rights like holiday pay, sick pay and pension contributions.

However, these entitlements are usually factored into the rate you’re paid, so you’re effectively funding them yourself through your contract.

A contractor working through their own limited company is typically both a director and an employee of that company.

While you can choose to pay yourself a salary and receive some employee benefits through your own payroll, you’re still treated as self-employed for tax purposes, especially when IR35 applies.

Freelancers are typically sole traders, rather than employees. In some cases, if a freelancer works through a platform with fixed terms and controls, they may be classed as a ‘worker’, which can bring limited rights such as holiday pay or minimum wage protections.

Which suits remote work better?

If your goal is to work remotely, freelancing tends to offer more flexibility. Most freelance projects are delivered online, and clients often expect remote delivery from the outset – especially on platforms like Upwork or Fiverr.

Contracting, on the other hand, has traditionally involved on-site work – particularly in IT, finance, and engineering.

While remote contracting became more common during and after the pandemic, many end clients still expect a hybrid or in-office presence, especially for high-security or team-based projects.

If working from anywhere is a priority, freelancing may offer more consistent opportunities – though remote-friendly contract roles do exist.

Final notes

• Freelancers working through structured platforms may, in some cases, be classified as ‘workers’ and entitled to minimum employment protections.
• Contractors typically invoice directly and handle their own taxes, often with the support of a specialist accountant.
• Freelancers often rely on platform tools for client communication, ratings and dispute resolution.
• In some industries, particularly consultancy or project management, the line between contractor and consultant is blurry – but consultants typically provide more advisory value rather than day-to-day delivery.