What’s the difference between a freelancer, a contractor, a sub-contractor, and a consultant?
Recent statistics showed that there are 4.7 million people in the UK enjoying the self-employed lifestyle1.
For many, it is the lure of being their own boss and breaking free of the constraints of office working that compels them to work for themselves.
Whilst others simply prefer the freedom that self-employment brings, including being able to control their work/life balance.
However, working for yourself can sometimes have its downsides as well as its obvious benefits. For a start, you are responsible for filling in your own tax returns.
In addition, you will have to save for your own pension, missing out on the benefits that an employer pension provides.
And finally, working for yourself often means you will be required to work odd hours of the day, sometimes more hours than you would work if you were in full-time employment.
Before deciding to go it alone, it is important to know exactly what role you are going to take as a self-employed professional, and which role could the right one for you.
What are the differences between a freelancer, a contractor, a sub-contractor, and a consultant?
If you decide to leave full-time work to go self-employed, you will most likely fall into one these categories:
All three categories share many similarities, and each require you to complete work for clients – which could be the project-based work of freelancers and contractors, or advice-based work that is provided by consultants.
Being self-employed means that you effectively become a small business. You’re generating the income for yourself in order to continue operating, just as a regular business would. You can be registered as a limited company or as a sole trader.
If you work as a sole trader in the UK you will be required to fill in a self-assessment tax return each year and submit it to HMRC.
What is a contractor?
The reality is that there isn’t a great deal of difference between a contractor and a freelancer. The main difference can be identified in the way they each work.
Contractors usually work on-site, for one organisation at a time, and for a fixed period.
Industries in which contractor roles are common includes IT, construction, and catering.
What is a sub-contractor?
As the name suggests sub-contractors are engaged by and have a contract with the contractor. They will usually fulfil tasks that the contractor is liable for but are unable complete themselves.
A classic example is a building project where the main contractor hires a plumber and an electrician to complete some of the tasks. The main contractor will remain liable to client for the building project.
Some consultants will employ sub-consultants, depending on the industry sector and the demands of the consultancy project. This is especially true if specific skills, such as IT, are required.
What is a freelancer?
By contrast, it is highly likely that a freelancer will work for several organisations at a time, often work from home, and typically invoicing based on an hourly rate.
These roles are categories of self-employed workers, who will typically pay their own taxes and arrange their own business insurance protection.
If you’re freelancing or sub-contracting, or if you’re engaging a freelancer or sub-contractor, it is advisable to ensure you’re clear on what is expected of you and that you’ve got the correct level of protection in place in your contracts of engagement. This includes your rate, details of what duties you are expected to perform during the project, and your business insurance protection.
What is a consultant?
A consultant provides expertise to organisations in a specific field or niche. Typically, the consultant won’t complete any project work themselves. instead, they will provide the business with the tools, strategy, and the tactics to implement their proposals. Consultants can cover many roles, from business planners to fire-fighters, either way they help businesses overcome obstacles to growth and development.
The field of consultancy is reserved for those who have a high amount of experience and expertise in any given field of business. That generally means they have occupied a senior position within the area of expertise they’re offering advice on.
The time a consultant would typically work on a project depends on the issue they’re advising on. Consultants can usually command high fees for their expertise, making it one of the most lucrative self-employed career choices.
Contracting as a limited company or as a sole trader, which is best?
Being a sole trader is a simpler business structure, which can be limiting, and it places you (the business owner) at a higher level of risk. As a sole trader you have sole responsibility for business decisions, debt, and taxes. If you register your business as a private limited company you will legally separate the business from you as an individual, taxes, liabilities and public transparency will change.
In the main, consultants and contractors operate as limited company owners because they provide limited liability, which separates their business from themselves. If something goes wrong financially with their business, their personal assets aren’t at risk.
Freelancers can also register as limited companies, but some prefer to operate as sole traders as it’s easy to setup, and requires minimal paperwork and less ongoing admin. As sole traders their financial information isn’t made public, as it would be in a limited company.
Regardless of the role or job description, freelancers, contractors, sub-contractors, and consultants each require their own business insurance to ensure their self-employed business is protected should anything go wrong in their work.
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