Q. What's the difference between a freelancer and a contractor?

You might see lots of different terms when you’re starting out in self-employment.

Freelancer, contractor, consultant, sole-trader, self-employed, entrepreneur, business owner.

Other than “sole trader”, they’re pretty poorly and inconsistently defined, yet people use some of these terms as if the meanings are well understood by everyone (and in truth, they’re not).

For example, I’ve lost count of how many posts I’ve seen where people say “If you’re asking me to work on-site, it’s not a freelance role”, which just isn’t always true. Lots of people feel like certain terms define certain things, and as far as tax rules or employment laws are concerned terms like “freelancer” and “contractor” don’t mean anything.

So, when you’re engaging with a new client, or looking at a job posting it’s important to ask a few critical questions, to understand how you’ll be engaged, rather than assuming their use of the term aligns with your use of the term.

That said, some of the more frequent terms do often have some common meanings.

Let’s explore them below, and see if they align with your meaning.

Freelance - the most fluid term, and most people can’t agree on a definition. Generally it’ll mean someone who is paid by the day, focused on a single project per client, and they’re taxed as self-employed - so they’re invoicing directly and paying their own taxes. They’re self-employed, and will often have multiple clients within the space of a half-year. Generally freelancers will be in control over their own workload, so might not come into a client to work, but deliver work under their own control.

That said - plenty of freelancers are put on payroll and treated as employees, and plenty of freelancers will work on just a single client for extended periods of time, and plenty of freelancers work on project fees, not day rates, and might work on multiple projects for a single client. And there are plenty of freelancers who work on-site, either by request or because it’s essential for the job - consider a cameraman, for example. Hard to do that remote!

Contractor - generally, contractors tend to be a little longer term, and their work is based upon showing up and doing work given to them for a fixed period of time, rather than a specific scope of work. They’re often taxed as an employee and have similar rights, like sick pay, holiday pay, etc, or work via their own limited company via a business to business relationship. Contractors are often on-site too.

But again, many contractors might be working to a project scope, might have an open ended contract, and might not have any rights and be paid by invoice rather than salary, and of course, with the rise of remote and flexible working, many contractors may never end up on-site.

Everything else? - There are also plenty of other strange terms like “FTC” and “Permalance”, which come with their own complexities and poor definitions. So as you can see, just because a role is labelled “contractor” or “freelance”, it isn’t a well defined term, and shouldn’t be relied upon to understand the engagement.

So what are the questions you should be asking when you’re engaging with a new client?

Let’s discard all of the labels like contractor and freelancer - and look at what really matters.

Remember, its important to recognise that it’s the specific engagement which you need to understand, not what you call yourself. Even if you call yourself a freelancer, one contract you could be an employee, another you could be self-employed or something else.

Five questions to ask before you accept:

1. Am I being engaged as self-employed, a worker, or an employee?
2. Will I be taxed at source via PAYE/payroll or will I invoice you and pay my own tax to HMRC?
3. Who am I contracting with? Is it you directly, or is there a third party (i.e. umbrella or agency)?
4. Will I get any employee-style rights or benefits (holiday pay, sick pay, pension)?

And most importantly, get all of this in writing - not a phone conversation. Emails are fine, even a whatsapp message could be sufficient, but ideally - a full contract which details your engagement, which you can both sign.

1. Am I being engaged as self-employed, a worker, or an employee?

If you’re being treated as self-employed, great news!

You should have much more control over when, where and how you work, but it also means you’ve very few protections or rights, and you’ll need to bring your own equipment and take on your own financial risk.

That doesn’t mean they can’t ask you to work on-site though. For some projects, it may be essential to be with your client or project team at specified dates - for example, imagine you’re a freelance cameraman for a TV shoot - your client is more than likely to be determining when and where you’re working, because they’ll be organising it for everyone!

But at the other end of things, if they’re asking you to be in the office, every day from 9-5, and telling you how to do your job - that might look more like employment, and risks being taxed and treated as such (and likewise, you should be getting rights and benefits accordingly).

If you’re being treated as an employee, this might also be great news!

It means you’ll get the same rights as permanent employees — like holiday pay, Statutory Sick Pay, parental leave, and protection from unfair dismissal, but it also means they have more control over how, where and when you work. Fixed-term contracts are generally treating people as employees, except, there’s a defined end date to your employment, or the contract ends upon delivery of the work - with no promise of future work after that date.

If you’re new to freelancing, being treated as an employee could be quite handy, as you don’t need to worry about registering for self-employment if all of your income is being taxed at source. Even if you’re a long-term freelancer, having a stint as a fixed term employee is not all bad, as it means you’ll have some sick pay, holiday pay, even potentially pension contributions, but it can add a bit of complexity to your tax return, and you need to make sure you’re not being taxed on income twice.

If you’re being treated as a worker, that’s different again (and probably the worst category).

It generally means you’re being paid via PAYE, but have minimal protections or rights. You get holiday pay, but not sick pay or redundancy protection. This status is commonly used for casual staff on zero hours contracts, platform gig roles (like uber drivers) and agency roles, and some less than scrupulous employers or umbrellas.

The term “Contractor” and “Freelancer” could be applied to any of the contexts above, but often, “contractor” implies longer term and often fixed-term employment status, and “freelancer” can mean shorter term and self-employed, but many businesses hire freelancers on longer-term contracts too! Make sure you understand your legal and tax status.

Remember, it’s not YOU who has a status, but your contract. You could be both employed and self-employed within the same day across two different projects.

nb. if you’re working through your own limited company - the rules are a little bit different, and we cover this in more detail in our IR35 guides, but, you’ll need to ask the same question - and your client will provide you with a “Status Determination Statement” which defines if you’re “inside IR35” (i.e. being treated as an employee) or “outside IR35” (i.e. working via your own company). If your client is less than 50 people, or below £10m turnover - they’re exempt from making this determination and you’re liable for the correct determination. But the same principle applies, ask them the core question - how are you being treated for tax purposes.

2. Will I be taxed at source via PAYE/payroll or will I invoice you and pay my own tax to HMRC?

Generally this is going to give you a pretty good idea too if they’re treating you as an employee or self-employed - most self-employed individuals will invoice, not be on payroll.

If you’re invoicing, you’ll be responsible for sorting out all of the tax, rather than deductions being made for you.

If you’re being added to payroll or on a PAYE scheme, that means they’re more than likely deducting tax for you.

Being clear on how you’re getting paid, and where deductions are being made is essential to ensure that the right amount hits your bank account, and that you’re putting aside the right amount to pay HMRC at the end of the tax year.

3. Who am I contracting with? Is it you directly, or is there a third party (i.e. umbrella or agency)?

Another important question (all of these work together to help give you complete clarity!) to understand the engagement - as many hirers won’t hire sole-traders directly, or refuse to work with limited company owners directly, and employ people via a recruitment agency or umbrella company.

In this case, you’re actually contracted to the intermediatry, they’re employing you, and your end client is paying the umbrella or agency. In these situations, you need to be 100% clear who you’re contracting with, and again, what deductions are being made.

There have, in recent years, been many cases where fraud gets introduced at this layer, where a middleman has been illegally deducting or with-holding moneys from people, and you can also see scams happening here too, where a middleman is saying they’re offering work with a client, but there is no work or relationship with that business.

The laws and rules around how umbrellas and agencies operate are changing to improve things, but always double check: who are you contracting with, and what are they deducting from your income.

Most reputable firms will provide you with a Key Information Document which details all of this. And if you’re unsure, check the firm is regulated by the FCSA (Freelancer and Contractor Services Association (FCSA)

4. Will I get any employee-style rights or benefits (holiday pay, sick pay, pension)?

If you’ve been told you’re a contractor, worker, or employee, or if you’re having your taxes deducted at source, or indeed even if you’re self-employed, this question is useful to ask to be absolutely clear on what they’re offering you as part of your contract.

If you’re self-employed, it’s likely the answer is a plain “no” - and you should be trading off the lack of rights and benefits for flexibility and control over your ways of working.

If you’re being treated as an employee or worker, the answer should be “yes”, and they should be able to provide you with details. If they cannot, this could be a red flag, and worth reviewing.

If you’re being treated and taxed as an employee or worker, and they say “no”, something isn’t right, and you should investigate further, or potentially even report the contract to HMRC.

Umbrellas also treat you as an employee, so you should be getting rights and benefits - again, ask for your Key Information Document, and ensure the deductions align with your expectations.

Working with multiple “employers” can mean you’re building up various pension pots too, which it’s worth consolidating at some point!

What do I do if I’m unclear on my status and my rights?

If you’re unsure about your status or rights, you can get free advice from:

Acas - explains employment status and rights, and can mediate disputes.

HM Revenue & Customs (HMRC) - for tax status queries (you can also use their Check Employment Status for Tax (CEST) tool).

Citizens Advice - gives practical guidance on rights, contracts, and what to do if you’re misclassified.

They can help you work out if you’re genuinely sole trader, or if you’re actually being treated as a worker or employee.

There are also a handful of businesses who specialise in this space around worker classification, IR35 and similar, such as Qdos who specialise in IR35, Contractor UK who specialise in contracting, and bodies like IPSE who offer contract reviews and legal support to their members.

In summary

The definitions of “freelancing” and “contracting” aren’t consistent, nor have any legal meaning. It’s essential to get clarity on the specific engagement, rather than assume the meaning of the label.

The only terms which are legally agreed are “employee”, “worker” and “self-employed”, and even there, the assessment of your own specific status on a particular project can be open to interpretation and context.

Whatever you choose to call yourself, or whatever a hirer chooses to ask for - being clear on how you’ll be treated for tax purposes, what rights and benefits you’re entitled to, and who and how you’re contracting with an organisation matter more.