To be self employed or a freelancer – what’s the difference?

People talk a lot about being self-employed or a freelancer, as if these words mean the same thing, but I think there is a world of difference between the two. The mindset of whether you see yourself as self-employed or a freelancer is as different as apples and oranges.

There’s no legal difference at all between seeing yourself as self-employed, a freelancer or running your own business. I’ll talk more about that in a moment.

I’ve been self-employed and giving business advice since 2000, but I’ve never called myself a freelancer.  Not that there’s anything wrong with being a freelancer, some of my best friends are freelancers.

That’s never been the way that I’ve thought about myself.  I’m more likely to talk about running my own company. I do worry that there’s something self-limiting about the term freelancer.

Why choose between being self-employed or a freelancer?

To me, a freelancer means someone who does pieces of work for other people. I think of myself as someone who employs freelancers, as I’ve got a lovely army of people who help me with all the bits and pieces involved in running the Joy of Business.

Freelancing implies a single person who works on their own, doing different projects for a variety of companies. Freelancers are an outsourced resource for other businesses.

It’s not about the money

There are lots of freelancers out there who earn more money than me.  My friend Sarah is a data analyst who is currently contracting for a very well funded AI start up. She’s working 5 days a week at 1.5k per day – a pretty healthy freelance gig.

And there are lots of people running their own companies. Often quite big companies, which don’t make any profit at all and might even be making a loss. Some of the freelancers are probably more financially secure than these folks; my data analyst friend Sarah certainly is, as she’s saving most of her money. If she loses this gig, she can just pick up another one.

It’s about what you’re building

The problem with calling yourself a freelancer, for me, is that it will always be just you. The freelancers I use to help with my marketing and admin, for example, are people who are selling me a chunk of their own time.

Some freelancers will make the transition to running bigger companies, perhaps through a network of other freelancers or by the more traditional route of taking on staff. Or they will pivot to a product-based business and stop trading their time for money.

This will be the point at which they’ll probably stop calling themselves freelancers because they’ve got out of that mindset. They’re running a business now.

People who call themselves self-employed or talk about running a business from the start make that transition to a bigger business sooner. They’re open to the idea of building something.  And even if, like me, they choose to stay as one person (albeit with an army of freelancers to help), they’ve got a mindset of growth right from the beginning.

I think that the path to a more grown-up business is the real difference between whether you see yourself as self-employed or a freelancer.

Let yourself be open to that possibility

If you’re quite early on with your business journey, then I’d encourage you to think about the opportunities for growth right now.

Even if your business is tiny, think of it as a business.

Because it will save us a lot of time and soul searching later on when you come to me for help in expanding because you’ll have already got past that freelancer mindset.

Isn’t there a legal or tax difference between being self-employed or a freelancer?

People often think that there’s a legal difference between being self-employed or a freelancer, but there isn’t, it’s just what you call yourself, and I’m arguing, your mindset for being able to grow your business.

The legal and tax differences (in the UK) are whether you’re a sole trader or a limited company. This difference only determines how you’re treated in law and for tax purposes. That’s it. Legally freelancers, self-employed people, company directors, founders… we’re all the same. But some of us will be sole traders, and some of us will be working through a limited company.

You can be a sole trader or a limited company, whether you see yourself as self-employed or a freelancer, and your choice should be based on how much profit you make and which one will let you pay less tax. As a rough guide, if your net profit before tax is more than 40k in the UK, you are better off trading through a limited company. Any accountant will be happy to do more detailed sums for you.

Once you’ve got that pesky tax issue out of the way, you can think properly about whether you want to think of yourself as a freelancer or if you are running what I call a grown up business.

What about making it a grown-up business?

If you want to make some real money or have a business that you can sell to others, you have to work at making yourself redundant from the business. You have to build up a business that doesn’t rely on you being there and certainly doesn’t need you to be providing all of the services.

That means moving away from the freelancer way of thinking. You’re working for yourself, rather than being the outsourced resource for someone else’s grown up business.

You might want to bring in other people (either as employees or associates) who can do the work as well as you. Or instead of you. Maybe getting some people who can do the work to a higher standard than you can.

It means changing the way that you see the business so that you become the person who is responsible for bringing in the work, checking that it’s done properly, liaising with clients and making sure that the company turns a profit.

It means that instead of you being your own employee, you need to start being the Managing Director, the Marketing Manager and the person in charge of Quality Assurance. This is the idea that Michael Gerber talks about in his book, The E-Myth Revisited.

What are the next steps for a freelancer?

If you’ve been freelancing (or been self-employed and running a business, whatever you’ve been calling it) for a while, and you’re thinking about getting to the next level. You might want some help to get there faster.

Stop trading time for money

When you’re ready to quit thinking of yourself as a freelancer and adopt the growth mindset of being self-employed or running your own business, you’ll want to start working out how you can quit trading time for money.

Read Trading Time for Money is Crazy – Let’s All Stop

Charge more money

And you will be wondering about how you can charge more money as well. To be honest, no matter what kind of business you call it, the biggest difference for freelancers, self-employed people or company directors is changing your pricing.

My Sweetspot Pricing Resource Pack focuses on exactly this, with lots of advice about how to raise your prices to the sweetspot point where you’re charging the right amount of money and getting the correct number of clients at that price.

Check out Sweetspot Pricing 

Do the boring (but vital) stuff

One of the ways that I know that someone has gone way past the level of being a freelancer or seeing themselves as self employed is that they’ve started to put in place what I call the “boring stuff.” They have the right contracts in place,protect their intellectual property and know which insurance they should have.

This is so important, because it protects the business you’ve spent all this time and effort building up. I’ve put together this “boring checklist” with all the boring but vital stuff you need to have in place with a grown up business.

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Also, I’ll send you some exclusive resources by email for running a successful business. Let me know how you like them.

Other blogs about freelancing vs running a business

What happens to my limited company if I die?

The transition from a freelancer to a grown-up business

My business models series – choose the right business model and move away from the freelancer/contractor/prostitute/billable hours model

The Tesco Test – does your business pass the Tesco Test, or do you need to make some changes?

How to feel good about charging more 

Photo credit – Jonatas Cunha from Flickr on a creative commons license,  grains, man and time on Pxhere and Jeremy Bishop on Unsplash