In the U.S., these terms are often used interchangeably. However, there are small (yet important) differences between how freelancers and independent contractors work. Understanding those differences helps you choose the right type of collaboration – and avoid IRS trouble.
In this article, you’ll learn:
- how freelancers and independent contractors actually differ,
- what the IRS says about classification,
- and how to protect your business when hiring.
Let’s break it down – simply, clearly, and with your business goals in mind.
Definitions of freelancer vs independent contractor
A freelancer is a self-employed professional who works on a project basis for different clients. They often handle multiple projects at once and usually work remotely. Freelance workers are common in creative and digital fields – like graphic design, writing, marketing, or software development. These professionals set their own rates and choose when and how they work. They can take on as many projects as they want as long as they manage their time and deadlines.
An independent contractor also works independently but may have a long-term contract with a single client or work on-site for other businesses. While freelancers often work with multiple clients simultaneously, contractors may stay with one company for a full contract period. You can find them in industries like consulting, IT, legal, or finance.
📌 Both freelancers and independent contractors are self-employed individuals. They aren’t full-time employees, don’t receive paid vacation or health insurance, and must handle their own self-employment taxes.
Example:
- A graphic designer working with 3 marketing agencies = freelancer (and also an independent contractor).
- A business consultant hired for a 6-month project = independent contractor (not necessarily a freelancer, but still self-employed).
Are they legally different?
Here’s the short answer: freelancers and independent contractors are treated the same under U.S. tax law.
The IRS doesn’t officially separate freelance work from independent contract work. Whether someone calls themselves a freelancer, consultant, or independent contractor – what matters is how they work and how much control you have over their tasks.
In legal terms, freelancers are simply one type of independent contractor. That means both:
- Work independently.
- Provide services to other businesses.
- Handle their own self-employment taxes.
- Aren’t covered by employment taxes, Social Security, or paid vacation.
If you’re unsure about classification, the IRS evaluates the relationship using several tests, including the Economic Realities Test and Common Law Rules. These tests look at behavioral control, financial control, and the overall nature of the job.
Why it matters for your business
Misclassifying your worker can lead to:
- Back taxes and penalties.
- Legal action from the contractor.
- Damage to your reputation as a client.
Whether you work with freelance workers, self-employed professionals, or independent contractors, you must define the terms clearly in a written agreement – and follow IRS rules from day one.
Contract terms and work setup
Even if freelance workers and independent contractors fall under the same legal category, they often work in different ways. Understanding those differences helps you set the right expectations and protect your business. Here’s a breakdown of the key differences between freelancers vs independent contractors:
| Feature | Freelancer | Independent contractor |
| Clients | Works with multiple clients or various clients at once | May focus on a single client or long-term projects |
| Type of work | Often short-term projects, freelance work, flexible scope | Can be a long-term contract, more structured |
| Work model | Remote, chooses own work location and work schedules | Remote or may work on-site or follow set contract period |
| Control | Has complete control over the process and tools (including choosing their own schedule and workflow) | Follows project goals but still works independently |
| Rates | Sets their own rates, usually per task, hourly rate, or fixed price | May negotiate project costs or hourly basis billing |
| Legal form | Usually self-employed individual | May run a sole proprietorship or LLC |
| Fields | Common in creative industries, e.g. graphic designers, writers, developers | Found in many sectors, e.g. IT, law, finance, consulting |
No matter which type you choose, make sure to:
- Define the scope of work clearly.
- Include legal clauses in your contract (like IP rights and deadlines).
- Agree on the payment process and schedule.
- Confirm who handles tax obligations.
→ Want more context? Check out this guide to learn how to tell the difference between a gig worker vs an independent contractor and other types of self-employed professionals.
How the IRS decides: the Economic Realities Test
When it’s unclear whether someone is your employee, freelancer, or an independent contractor, the IRS and the Department of Labor use the Economic Realities Test.
This test doesn’t look at the job title. It looks at the real working relationship. The main question is: Is the worker running their own business – or are they economically dependent on your company? Here are the key factors:
Financial control
Does the person set their own rates? Can they take on multiple employers or decline work?
If yes – that points to freelancer or independent contractor status.
Business investment
Do they use their own tools or software or rent office space? Both freelancers and independent contractors often invest in their businesses to stay competitive.
Project setup
Is the work short-term or tied to a specific project? Freelancers usually work project-to-project. Contractors may do both short-term and long-term work, but the structure still matters.
Behavioral control
Do you tell them how to work – or only expect a result? If a freelancer or contractor manages their own schedule and methods, they’re likely not your employees.
Specialized skills
Does the person offer specialized expertise to many clients? Some independent contractors or freelancers build long-term relationships with multiple organizations across different sectors. That’s a sign they’re running a business, not acting as an employee.
Risk and reward
Can they make more (or lose money) depending on how they manage their time, clients, or workload? That kind of financial independence is a clear sign of self-employed status – whether it’s a freelancer or contractor.
No single factor decides everything. The IRS looks at the whole picture.
Even if someone signs a contract, they might still be misclassified if they only work for you, follow your internal processes, and act like a regular team member.
📌 The bottom line: Make sure your contractors or freelancers are free to work, handle their own tasks, and aren’t treated like full-time employees.
Best practices for your business
Whether you hire freelance workers, independent contractors, or both – setting the right structure protects your company. Here’s how to work safely, legally, and efficiently.
1. Use a written contract
Always define the basics:
- Scope of work and contract period.
- Deadlines and work schedules.
- Payment process (hourly, fixed, milestone-based).
- Ownership of the final deliverables (IP rights).
- Confirm who handles taxes and legal compliance. This avoids confusion and clearly defines the responsible parties in case of legal or tax issues.
💡 Tip: If you’re working across borders, include any required tax forms (like W-8BEN for international workers).
2. Define payment clearly
Choose a structure that fits the project:
- Hourly basis – for ongoing work with freelance workers.
- Fixed price – for a specific project.
- Retainer – for long-term, flexible support.
Always agree on how often you’ll pay (e.g. weekly, monthly, per milestone). Don’t leave room for confusion.
3. Collect the right documents
- For U.S.-based contractors: W-9 form + 1099-NEC if you pay over $600/year.
- For non-U.S. freelancers: W-8BEN + confirm they’re working outside the U.S. (to avoid withholding tax).
💡 Want to learn more about tax forms, withholding rules, and legal compliance? Check out our full guide: How to pay independent contractors.
4. Respect their independence
Don’t control how the work gets done. Avoid setting their hours, choosing their tools, or assigning them to your office space. Freelancers and independent contractors should manage their own process – just like any other business partner.
5. Keep clear records
Save all invoices, contracts, and payment confirmations. These documents are your safety net in case of disputes, tax questions, or an IRS audit.
How Useme helps you hire freelancers and independent contractors
Looking for a faster way to work with freelancers and independent contractors – especially from outside the U.S.? That’s exactly where Useme comes in.
Here’s how it works
- You choose a freelancer – writers, graphic designers, developers, marketers, translators, and more.
- You register a free account here.
- You agree on the specific project, timeline, and payment terms.
- Useme signs a legal contract with the contractor.
- You receive one invoice from Useme – no need to deal with individual tax forms or currency issues.
- After you pay, Useme handles the payout, tax compliance, and deadlines.
It’s ideal if:
- You work with many freelancers or independent contractors or want to hire from a global team.
- You want to avoid paperwork and reduce admin time.
- You need reliable support with international contractor payments.
Why clients choose Useme
- No business registration is required from the freelancer.
- Works with freelancers who don’t run formal companies.
- Clear contracts, tax documentation, and secure transfers.
- Full support with project-based or long-term contracts.
You get access to highly skilled professionals from the EU, where the quality-to-price ratio is often better than in the U.S. This is great for startups, agencies, and e-commerce brands that need fast results with full compliance.
Key takeaways: freelancer vs independent contractor
Still unsure how to handle the freelancer vs independent contractor question in your business? Here’s a quick summary to guide your next hiring process:
- Freelancers are independent contractors who usually work on short-term projects for multiple clients simultaneously.
- Independent contractors may stay longer with a single client, often in technical or consulting roles.
- Legally, the IRS doesn’t draw a sharp line – both are self-employed with similar tax obligations.
- You don’t pay taxes, health insurance, or provide office space – but you must classify them correctly and handle the right forms.
- Focus on the outcome, not the process. Let your contractor work with complete control over how and when they deliver.
- For cross-border work, platforms like Useme help you stay compliant, avoid admin overload, and pay securely.
When hiring freelancers and contractors, clarity beats assumptions. Get your contracts, payments, and expectations right – and you’ll get the results you want without the legal headaches.
