If you've been following hiring trends, you may have noticed a recent increase in businesses of all sizes turning to workers outside the company to fulfill tasks.
In 2016, over $75B of the global market went to outsourced services. By 2019 that number had already risen to 92.5 and has only grown since the pandemic. (source) And businesses are taking note. As of 2021, 28% of small businesses outsource to increase efficiency and lower costs. (source)
It might look the same to hire an agency, a freelancer, or a contractor, but there are essential differences between the type of professional you outsource work to.
The types of services companies search for vary from translation, copywriting, and beyond. You may be looking for someone to fulfill a one-time job, like a logo, or stay on for a season to lend a helping hand. So, what's the difference between a freelancer and a contractor? And more importantly, and how do you know which is more suited for your needs?
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This post will explain what freelancers and contractors are, how they're alike and different, and break down the benefits of employing each. Furthermore, you'll also learn how to manage your outsourced workers regardless of the type of contract they have.
What is a freelancer?
A freelancer is a self-employed professional that provides services to one or more clients, whether on a one-time basis or a long-term project. Freelancers set their own hourly or per-project rate and usually work according to their client's timeline or deadlines. Their projects tend to be short and can even include multiple submissions over some time, often even renewing every month. Journalists, designers, programmers, and writers often work as freelancers for companies.
What is a contractor?
A contractor is a self-employed professional providing typically larger-scope projects with a few clients. Under the companies' strategic direction, they provide work already defined by the customer over some time. The work they do will be paid under a fixed price, often regardless of the hours worked. During the contract, they'll usually work exclusively with one business or take on very few clients. Contractors are often found in fields like business and operations, accounting, or HR.
Freelancer vs. Contractor
Though both types of workers are self-employed, they have many differences. Understanding the nuances between these two work models may not seem critical, but mixing them up can result in confusion, poor communication, mismanagement of tools, and even tax issues. With the future of your project at stake, these differences will heavily influence the type of contract you want to establish with an outsourced worker. So, how can freelancers and contractors look similar and different?
- They aren't onboarded—Both freelancers and contractors provide their skills and expertise using their own methods, software, etc. This means that companies don't spend time or training these individuals.
- Both have set rates—Freelancers and contractors set their own rates per hour or project. They can reach agreements with clients regarding scope, but their rates tend to stay the same across projects.
- Neither receives employee benefits—Both workers cover their own expenses, pay their own taxes, and invest in their own benefits like health care or time off.
- They find work in similar ways—Freelancers and contractors tend to work independently or through agencies that find clients for them, a service that includes setting terms and even billing for them. With an agency, you likely won't choose the exact individual you work with but instead will be assigned one according to availability.
- They don't enjoy the same freedoms—While both types of workers are free agents, freelancers tend to work from anywhere at any time. On the other hand, contractors may be asked to work onsite and during specific work hours, fulfilling schedules that look more like a traditional employee's.
- Project length and exclusivity vary—Unlike freelancers, contractors take on work that lasts for weeks or even months. While freelancers complement their income with several clients, contractors tend to commit to fewer clients at a time.
When to use a freelancer
Having a freelancer will often mean working with them under an individual contract. The control you have over freelancers' work, hours, and even the security they use when accessing your company tools and data is limited. If there are no in-house employees with the skills or availability to fulfill a task, using a freelancer could be a good option.
Additionally, if your job or project is short-term or sporadic, a freelancer will always be a better option. Here are other times you should consider a freelancer over a contractor:
- When you need creative tasks on a per-campaign basis
- When you are looking for a good level of expertise for better value
- If you're comfortable working under flexible schedules and meeting virtually (if at all)
When to use a contractor
You should consider hiring a contractor if you already have a fixed scope and budget under which you want to work. If you're not prepared to work with someone remotely or need in-person support, a contractor is more likely to fulfill those needs. This is especially true if you worry about hiring someone who will have a variety of other clients and can't prioritize your project. Besides these reasons, companies also opt for contractors if:
- Need work in areas like HR or accounting
- Require in-person contact with other employees
- Need a higher level of confidentiality
How to manage your freelancers and contractors
Overseeing work that professionals do outside of your company can get complicated. That's why there are some best practices, tools, and resources to manage both freelancers and contractors.
Have a kickoff meeting
Especially for longer-term projects, you'll want to schedule a kickoff meeting. This is an initial meeting to line up your expectations, deadlines, scope, and all other details. This type of meeting is key to managing the working relationship with a freelancer or contractor. During this call, you'll share and request all necessary information to make the relationship a success.
Use a time tracker
For freelancers, especially, you can use time trackers like Toggl or Harvest to manage the time spent on your project. According to your needs, these tools have varying features, including occasional screenshots, billing, and more.
Establish in the beginning what channels you'll be using to communicate. Whether you use a shared slack channel, a messaging app, or email, every part should be clear about where things should be displayed and how often.
Use Teampassword for outsourced work
Both freelancers and contractors are external to your business, which means from a security perspective, they require unique management. It might be necessary to give them access to your files, resources, tools, and other online data, but this doesn't have to be risky. To best manage your outsourced work while keeping security tight, use a password manager.
TeamPassword lets businesses create and share credentials with authorized parties. It gives all your freelancers and contractors access safely while offering total transparency to managers about how the logins are being used and when.
Here's how you can manage your outsourced workers using TeamPassword:
- Add them to your team's group to share login credentials which they can keep via their mobile device, desktop app, or extension.
- Ask them to set up their two-factor authentication (2FA) for security.
- Receive notifications and logs about their login activity.
- Once your project collaborators finish their work, you can remove them with a single click—no need to reset passwords every time a freelancer or contractor leaves the team.
With safe and secure access to assets and tools, a clear timeline, and clear communication, you can get to work with your freelancer or contractor right away.
Start with a free trial
Now that you've learned what freelancers and contractors are and how they differ, you can choose which type of worker to whom you should outsource projects. From here, look at the tasks and projects that need external work, separate the roles into freelance or contractor work and start hiring.
Whether you need one freelancer or a team of 10 contractors, you'll be able to allow them access to your project and logins securely via TeamPassword. Sign up for a 14-day free trial today!