Blog Career Guidance Contract vs Freelance vs Full-Time: Can You Tell the Difference?

Contract vs Freelance vs Full-Time: Can You Tell the Difference?

This blog post was last updated on July 23, 2021.

Until the last decade or so, there was a certain path that emerging workers and career-switchers pursued automatically. Everyone in the employment equation took for granted that you would learn a specific skill set, whether through higher education, a vocational or trade school, or an apprenticeship, and then find a job. 

Pursuing a single, long-term employment position was for many the only way to leverage all the benefits that came with full-time employment.

While this track may still hold appeal, the job market is changing and the landscape of work available is much more diverse than it was even ten years ago. 

As the economy shifts, technology advances, and working in a particular physical location becomes less and less a necessity, workers now find themselves faced with ever-broadening possibilities for employment, in a variety of arrangements. And they’re taking advantage of it.

Upwork’s Freelance Forward 2020 study reported that 59 million Americans freelanced in the past year, which is 36% of the total workforce. 

What’s Right For You?

It’s not only the shifting technology and volatile economics that lie behind this surge of self-employment, it also appears to be a generational and cultural phenomenon.

According to a recent survey of millennials by Gallup, 21% of millennials have changed jobs in the past year. This suggests that the idea of tenured positions, of retiring from one company after a lifetime of service, no longer holds the same allure for workers today as it once did. 

At the same time, these kinds of jobs are becoming increasingly rare. They still exist, but in the age of the startup and the IRA (Individual Retirement Accounts), employers and employees alike are less inclined to view retirement as the end goal of any offered position.

Programmers and developers are especially suited for nimbly navigating between freelance, contract, and full-time employment — partially because this type of work can be done from remote locations (anywhere you have a laptop and an Internet connection), and partially because highly skilled coders are in hot demand. 

But what are the implications for each type of work you may find yourself being offered? Understanding your career options can help insulate you from the resulting financial duress if a startup flops, or if you find yourself laid off or in between jobs.

Your Employment Options

Full-time Employment 

A full-time employee works for one company and is paid either hourly or by salary for work done. The employer handles tax withholding and reporting; and the employee is usually entitled to benefits (health insurance, life insurance, 401K, etc.). As of June 2021, Statista reported that there were about 126 million full-time employees in the U.S. alone.

For example, a new employee is hired as a data analyst for Facebook. He is expected to work about 40 hours each week in an office, and in return is compensated with a salary and an array of benefits, likely health insurance, paid sick and vacation time, a matching 401K, and perhaps educational reimbursement. Overtime may or may not be required, and may or may not be compensated for, depending on the offer of employment.

Full-time employment is usually specified at-will, meaning that even if you are offered employment, you or your employer can terminate that employment at any time for any reason. There are laws in the U.S. that protect workers from unfair discrimination and unsuitable working conditions, but employees are not immune to layoffs, downsizing, or buyouts.

Freelancers vs. Contractors

Freelancers and contractors have a very different relationship with companies, which function now not as employers, but clients. The distinction between freelance and contract work itself, however, is a little less clear, and one can sometimes blur into the other.

Generally, freelancers are hired by the project, and the client relationship is straightforward. Freelancers are expected to report and withhold their own taxes, and typically itemize their deductions. They do not receive employee benefits from the companies they work with. 

Freelancers usually juggle multiple clients at a time; and when not doing client work, they may be marketing themselves and networking, trying to find new work.

For example, a freelance web developer may be currently working with three clients and booked out, with these or other clients, for the next five months. She works from home and invoices her clients to get paid. She figures out the tax side of things, or hires someone to do that for her, just as though she were her own business — which, in a sense, she is. 

Independent Contractors

Independent contractors can work like freelancers, with multiple clients on a per-project basis, but more generally they work with one company at a time for an extended and specified period (the “contract”) and they are paid by the hour. They may be contracting themselves out, and thus reporting their own taxes. Or they may be placed in the contract by a third-party agency, in which case they’ll receive a W-2 from that agency at the end of the year for hours worked. 

Completely independent contractors (so called 1099 workers) do not receive employee benefits. Agency-placed contractors (W-2 contractors) often have access to a limited menu of benefits, such as a non-matching 401K or an FSA. 

Like freelancers, 1099 contractors have clients. W-2 contractors have . . . well, it’s a little less defined. W-2 contractors are employees of the agency that placed them, but they continue to function in something more like a client relationship with the company they’re working with.

Contractors of either sort are not paid for vacation time, for corporate holidays, or for other time off. Sometimes they are expected to show up in an office, sometimes they work remotely, and sometimes the contract position is intended as a prelude to a potential full-time position.

For example, a company may hire an independent contractor to perform site updates, security, and backups. The contract is in force for a specified period of time, perhaps 18 months, and the company pays the contractor at regular intervals. No need for an invoice. If that contractor has come through an agency, she does not need to manage her own tax withholding. If she has not, she’ll shoulder the responsibility of that task, just as a freelancer would.

These roles are not mutually exclusive. It’s fairly common, especially in tech, for full-time employees to moonlight as freelancers and contractors in their off-hours. 

If you experiment with this, just be sure to resolve any potential conflicts of interest or contractual obligations you might have with your employer first. It’s also worth noting that many U.S. companies are willing to hire international workers as remote contractors for positions they wouldn’t be able to offer those workers (often because of visa issues) full-time.

What Type of Employment Should You Seek?

Choosing between freelance/contract work and a full-time position depends entirely on you: on your career goals, your life goals, your family situation, your location and the local economy, your work style, and so on. 

As more traditional forms of employment are slowly replaced by newer, more varied paradigms, and as it becomes easier for independent workers to access alternative healthcare and retirement savings plans, many in the job market choose some sort of hybrid between freelance/contract and full-time. Or they may switch between the two roles, sometimes in an employer relationship, sometimes in a client relationship, with respect to the companies they do business with.

For emerging workers, freelance and contract work can be a great way to start, helping you gain a variety of experience in a relatively short time. It’s entirely possible to have a satisfying, lucrative career as an independent freelancer or a 1099 contractor.

If you’re the type who thrives in a multitasking environment, who doesn’t mind managing the business side of being a freelancer, and who would thrive in a coworking space or working from a coffee shop, that may be the ideal lifestyle. 

Understand, though, the most successful freelancers and contractors (even to some extent the W-2’ers) are not only putting in the hours to finish client projects, they’re also managing their own businesses — which may include having to learn about business and tax laws and regulations, managing their own marketing efforts, networking, and scaling their work for future growth.

If all that business-side development is definitely not appealing, but the flexibility, mobility, and variety of short-term work is, then you might consider listing with several placement agencies and giving W-2 contracting a try.

Workers are finding it easier than ever to go from freelance to full-time, or to transition to contract.

Of course, once armed with an attractive resume and a robust portfolio, you’ll have the choice of either continuing to seek out independent projects or of angling for that perfect full-time position that just came up.

But if none of it appeals to you — if the paperwork sounds dreadful, if the flexibility and mobility doesn’t tempt — if what you’re really looking for is something stable and steady, something reliable, then full-time work is more likely to be your calling. 

There’s a certain comfort to knowing exactly what your monthly take-home pay will be, to being able to keep regular hours, and to having a clear understanding of your working expectations — and a great full-time job with a solid company can offer exactly that.

Even though the job market is diverse these days, it’s still possible to find great positions working for great companies. Developers and analysts are uniquely positioned in a field that is growing by leaps and bounds, and companies all over are eager to find smart, savvy workers they can hold on to.

The Bottom Line

Work is changing and workers need to be adaptable to that, especially in tech. Knowing that you can move between freelance, contract, and full-time employment offers an additional layer of job security that workers in some industries don’t have. 

While there used to be a stigma around freelance or contract work, the shifting economy is breaking down those barriers, and workers are finding it easier than ever to go from freelance to full-time, or to transition to contract after having been employed.

You might try several avenues before deciding how you’ll plan out your career, to determine whether your work style is more suited to one over the others. 

“After ceasing operations of a failed startup I co-founded, it was hard to imagine going back to having someone else place regular expectations on my time,” explained Jason Woodward, a web software and data model author, and Principal of State & Plain.

“I much prefer the more flexible time and place arrangements of short- and medium-term contract work. There’s a ton of extra stuff to worry about, like business development, accounting, and business taxes, but for me the trade-off is still very much worth it.”

Whichever career path you take, you’re not alone. While there are 126.2 million full-time employees in the U.S., there are an estimated 59 million freelance and contract workers, and the numbers are increasing. Statista data projects that in 2027, 86.5 million Americans will be freelancing and be 50.9% of the total workforce.

The future is freelance, and that future is bright. Upwork’s Freelance Forward study indicated that 58% of non-freelancers new to remote work are likely to consider freelance work in the future. With remote and flexible work here to stay, your options for freelancing are going to grow. 

Build Your Skills To Chart Your Own Career Path

In the end, what matters most is your own satisfaction. When deciding between contract vs freelance vs full time, If the work is challenging, if the projects are advancing your career, and if the money is meeting your financial needs, there’s no real advantage to taking one route over another — other than going with what works for you.

Are you looking to learn new tech skills and take advantage of the new landscape of work?

Check out the Udacity Course Catalog to get started. 

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