The Pros and Cons of a Freelancing Career | DCR Workforce Blog

The Pros and Cons of a Freelancing Career

The Pros and Cons of a Freelancing CareerSingle or not, all working parents have faced the kind of troubles experienced by George Clooney and Michelle Pfeiffer – ‘One Fine Day’. They struggle to juggle their responsibilities to their children while trying to meet their obligations to their employers – often when under severe stress. But real life consists of many such days – not just one. That is probably why the job market is transforming itself as more people choose to work as freelancers, in an effort to achieve greater balance between personal and professional commitments.

The market is looking at freelancing as a potential win for all parties. It helps a worker achieve a better work-life balance and it also saves money for employers. By coming up with ways to employ freelancers, employers avoid the fixed costs of a permanent employee, and the associated expenses of offering health insurance, and paying employer taxes and workers’ compensation. An increasing number of jobs – from technical support to landscaping – are shifting to freelancers and independent contractors.

In the DCR Workforce blog, we have repeatedly cautioned employers against misclassifying workers as independent contractors, without justification, without industry precedent and without establishing an independent relationship with the worker. Lately, however, we now see an increase in the use of the term “freelancer”, and a corresponding rise in the level of confusion regarding the difference between freelancers, consultants and independent contractors.

There are two ways to differentiate between these labels:

  • The terms “consultants” and “freelancers” describe a style of work. Consultants work in an advisory capacity, providing expert knowledge in return for a fee. Freelancers provide a specific service in return for a fee. While they may offer upfront advice, they actually carry out the work.   Both freelancers and consultants are legally classified as “independent contractors”, as they perform services for their clients without having the legal status of an employee. From an IRS perspective, earnings are reported through a 1099 form, which is why they are often referred to as “1099s”.
  • Some people further differentiate between “freelancers” and “contractors”. In this case, the contractor will tend to be retained by a client for an extended period of time, and work exclusively on that client’s project during that time. The work may be performed at the client’s facility. A freelancer, on the other hand, is more likely to simultaneously be serving numerous clients, and working from a remote location. Again, both are forms of independent contractor.

It is possible for a freelancer to do many things. As with everything else in life, some of them are good, while others may be not so good:

Pros:

  • Be a one-person show – usually for a handful of clients.
  • Set their own schedules and charge their own rates.
  • Simultaneously conduct work for clients while managing personal and family issues.
  • Avoid pounding the pavements looking for business, as many websites offer opportunities for freelancers. They can engage more clients using websites which charge businesses for posting an opportunity but charge the freelancers nothing. They also make sure that the freelancer is paid.
  • Avoid being stuck in an unexciting job for years, at a flat pay even though the cost of living is going up, eroding one’s lifestyle and making it impossible to save for a pension.

Cons:

  • Only highly valued niche skills would allow people to make more at freelancing than a regular job. Others can never aspire to make whatever they used to make as regular employees.
  • Freelancers must devote time to billing, ensuring payment, and finding their next engagement while serving existing clients.
  • Costs of commuting between jobs may prove a drain too.
  • Employer-sponsored benefits like 401 (K) or medical insurance will not be available.
  • The worker will have greater difficulty building a fair credit score, or qualifying for a loan or mortgage as their future earning potential is always in question.
  • Litigation is the only recourse when disputes occur. This can be time-consuming and expensive.

As of today, the estimates of how many freelancers are in the market vary most dramatically. One report states that 34% of the U.S. workforce, or 53 million workers, fall into the categories of “contractors, moonlighters, diversified workers, temp workers, and freelance business owners”. Other research firms offer a more conservative estimate of 12%! No one really knows.

Where are the Laws?

The answer would be – very far behind and not likely to catch up in the near future! Perhaps the U.S. legislators should take a critical look at the various laws governing independent contractor relationships around the world as examples of how to bring financial and legal clarity to the definition of independent contractors, and the role of freelancer. Current IRS guidelines are often subjective when considering the classification status of a freelancer. As freelancers work alone, it becomes harder to prove or disprove issues of control. When a freelancer works for a sole major customer, such financial dependence could also prove to be an issue. More concerns will be added to the list, as new legal challenges are filed. Hopefully, their outcome will bring more insight into the laws governing the use of freelancers.


Disclaimer:
The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.