Freelancer, independent contractor, small business or consultant – what’s the difference?

02.09.2015

Freelancing is increasing in popularity nowadays, but the word is often misused. And that is not surprising with terms like independent contractor, consultant or, indeed, freelancer mostly lacking clear definitions. This article aims to clear up some of the common misconceptions about these terms. It has to be said, however, that a strict and fully separating definition does not exist. Having that disclaimer in mind, feel free to read on.

Independent contractors
Let’s start of with the independent contractors. Contractors, like the word in itself suggests work on particular tasks and are bound by contracts. The main difference to freelancers is in the exclusivity of the relationship with the client. Freelancers can, like contractors, be hired for a certain task or project. The difference is that independent contractors are often bound by the contract they have with their client, legally obliged to only work with that particular client until the job is finished, e.g. Website Development projects or Web Design projects. Such non-compete clauses could cause an independent contractor to focus on one project at a time, making it more beneficial for them to look for longer projects. This explains why contractors tend to work directly in the company office instead of at home. Basically, contractors are exclusively offering their services, meaning a “stronger” connection to the company. If you are going to have someone work for you on a two-year-project and that someone is going to work just for you, why not have that person at the office? That way he can exchange ideas, talk to co-workers and get a better general feeling about what he or she is supposed to do and why/how exactly it needs to be done.

Freelancers
If you read the independent contractor part carefully, you already have a pretty good idea of what the main aspects defining a freelancer are. As mentioned above, freelancers are usually not constricted by contractual agreements such as a non-compete clause, allowing for more flexibility. This opens the door to working on multiple projects at a time. Since a person working for several clients at once cannot be present at all offices, freelancers more often than not prefer the comfort of their own home.

Consultants
The main aspect making consultants different from the two groups described above is again to be found in the word itself. They consult, meaning they provide a client with an expert opinion, advice or direct training in their field of knowledge, e.g. in the fields of SAP. However, once a consultant provides the company with advice or information on what has to be done, they might sign an agreement with the client to carry out this particular service. At that point, a consultant becomes a contractor, which is why these two terms can often be confused.

Small Business
When starting out with a freelance job, most people don’t have a bigger business in mind. But freelancing has a way of growing exponentially – if you are doing a good job that pleases your clients they tend to stick around, while new clients come as well. If they stick around too, you might soon find that your workload is too high for you alone. This is when you might want to consider starting your small business. Small business owners usually hire people to work with them, meaning they have an increased responsibility and have to manage their team. The number of employees one is allowed to have and still remain a small business varies quite a lot. You can hire no more than 15 people in Australia, going up to 50 in the EU and reaching a staggering 500 employees in the US. Once again, a small business means employees and more responsibilities, but can be useful for making a name for yourself.

Hopefully this short explanation did more than just further confuse you, but rather gave you an idea about the main differences between freelancers, contractors, consultants and small business owners. 

Pic: © rubysoho - fotolia.com
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