Over the past decade, the growing needs of businesses to hire flexible workers, coupled with the massive communication benefits provided by the web, has resulted in a freelancing boom in the UK.
In fact, 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 type of independent worker.
In reality, the two terms refer to quite different types of worker.
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 a number of clients at any one time, and usually work from home.
Contractors are hired on fixed-term contracts – via recruitment agencies, or directly with 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.
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 via 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 not a responsibility recruiters want 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 counted as one, and no separate incorporated structure is required in the majority of cases.
This isn’t to say that freelancers don’t use limited companies, but there is rarely a legal requirement to do so.
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 board cater purely for the IT contracting market, not freelancers.
Ironically, the term ‘freelancer’ – as we know it in the UK – is becoming increasingly associated with low-cost mass outsourcing sites such as Odesk, Freelancer.com and Elance, where you can hire people from all over the world to take on a wide range of development tasks – for as little as $3 per hour.
So, not only has the word ‘freelancer’ been incorrectly applied to IT contractors, but your typical UK-based budding freelance copywriter may soon have to find a new generic term to describe his trade, to avoid the association with cheap outsourcing!
Written by ITC founder, James Leckie