What is Freelancing?
Essentially, a freelance job is one where a person works for themselves, rather than for a company. While freelancers do take on contract work for companies and organizations, they are ultimately self-employed.
Freelancers are responsible for all sorts of things that traditional employees are not, such as setting their work hours, keeping track of time spent on different projects, billing clients, and paying their own employment and business taxes. Freelancers are not considered “employees” by the companies they work for, but rather “contractors.”
With the rise of the gig-economy, people are talking about freelancing more than ever before. And that’s because there are more freelancers today than there have ever been in history – a 2019 study by Upwork and Freelancers Union shows that 57 million Americans freelanced in 2019.
And according to the same study, 53% of workers aged 18-22 are freelancing.
Not everyone uses the term “freelance” or “freelancer” when it comes to work that a freelancer may do. In fact, even most freelancers refer to themselves as “self-employed.”
Other terms that relate to freelancing:
- Contract work: Jobs where you are working to fulfill a short-term or part time contract
- Independent contractor: This is the IRS classification of a freelancer
- 1099: Freelancers are paid using a tax form called a “1099-MISC” as opposed to your typical, full-time W2. Sometimes “1099” is used to refer to a freelancer.
- Contract consultant: This term refers to a consultant coming in under a 1099 contract for a short period of time.
- Contract-to-hire: Sometimes freelancers are interested in full-time employment. Contract-to-hire roles provide a sort of “test period” for a freelancer before they are hired full time.
Why is it called freelancing?
The term “freelance” dates back to the 1800s when a “free lance” referred to a medieval mercenary who would fight for whichever nation or person paid them the most. The term “lance” referred to the long weapon that knights on horseback used to knock opponents off of their horses.
How does freelancing work?
Freelancers accept payment in return for providing some sort of service. That agreement is generally part-time or short term.
For example, if I hired a photographer to take new headshots for me, I could pay a freelancer for that session and that would be the end of it.
Sometimes people pay freelancers to work a set number of hours per week or per month. That arrangement is often referred to as a “retainer.”
A retainer refers to when you retain the services or right to someone’s time. A lot of legal professionals work on retainer. Every month, they bill a set amount of time to the client, regardless of whether that full time is used or not.
It’s really one of the simplest and most pure forms of entrepreneurship: the freelancer provides a specific service or outcome, and the buyer pays them a fee directly.
Why are people freelancing?
Freelancing provides a lot of flexibility and control to the individual. Most freelancers choose their own hours, the work that they do, the clients they work with, and may even be able to work remotely.
Freelancing is also a form of entrepreneurship, which means the freelancer has total control of their earning potential. Freelancers aren’t locked into a salary, and so they can earn as much as they are able to bill to their clients.
And as a freelancer, you are your own boss.
Freelancing provides a lot of variety in the type of work you can do, too. If you are someone with a lot of interests and are drawn to trying new things, freelancing can help you explore all kinds of projects and industries.
Historically, freelancing isn’t something people typically do forever. They either hire other freelancers or employees to build a full agency, they build their own products to replace their freelance income, or they go back to working full time.
Freelancing provides the flexibility many people want in order to figure out their next career move.
What are the risks of freelancing?
Freelancing comes with both financial and some health risks.
In the United States, one of the biggest benefits to full time employment is access to healthcare and other financial benefits outside of your typical salary. That may include a 401K retirement plan or company-provided health insurance.
For freelancers, being hired as an independent contractor generally means companies will not provide those same financial or healthcare benefits to you.
So freelancers are on their own when it comes to planning for their financial futures and enrolling in health insurance coverage.
Not only are freelancers on their own to set these benefits up for themselves, but they are also at a bit of a disadvantage.
When a company negotiates a health insurance policy with a broker, they are often able to get more favorable rates since they are buying in bulk. But as a self-employed individual, you are buying a policy for yourself and your family only.
And, unfortunately, that means your health insurance may cost more.
It is easy to set up your own retirement savings account, but there will not be any matching contributions from your employer.
And finally, freelancers are responsible for all income coming into the business. If you are unable or unwilling to sell more projects and land more clients, your income will dry up.
These risks are all manageable, but they are worth considering before you jump into freelancing full time.
Conclusion.
Freelancing means to be your own boss. It’s on you to find a way to fill your time with paid work, whether it’s client direct, subcontracting, or through a jobs marketplace.
There are dozens and dozens of different types of freelance jobs, and more companies are hiring freelancers than ever before.
Freelancing can be an incredible way to earn a living on your own terms, but there are tradeoffs when it comes to financial and health benefits.
It’s up to you to decide if freelancing is right for you.
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