Glossary

What is a contractor?

A contractor is an individual or business entity engaged to perform specific tasks or projects under a contractual agreement. Contractors work independently, manage their schedules, and are responsible for their own taxes and benefits. Unlike employees, contractors do not receive traditional employment perks such as paid time off or healthcare benefits. This model provides businesses with flexibility and access to specialized skills without long-term commitments.

What is a freelancer?

A freelancer is a type of contractor who offers services independently, often on a project-by-project or task-by-task basis. Freelancers typically operate in creative, technical, or professional fields such as writing, graphic design, or programming. They determine their rates, select the projects they take on, and work with multiple clients simultaneously, offering flexibility for both parties. Freelancers are considered self-employed and are responsible for managing their taxes and benefits. Contracts between freelancers and clients typically outline the scope of work, deadlines, and payment terms.

How is a contractor/freelancer different from an employee?

Freelancers and employees differ significantly in their employment relationships and obligations:

• Freelancers: Operate independently, manage their own taxes and benefits, and are often hired for specific projects or short-term engagements. They control their work processes and schedules.
• Employees: Work under the direct control of an employer, receive regular wages or salaries, and are eligible for benefits like healthcare, retirement plans, and paid time off. Employers handle their tax deductions.

Benefits of hiring contractors and freelancers

1. Cost savings: Businesses save on payroll taxes, benefits, and long-term commitments.
2. Access to expertise: Contractors and freelancers often bring niche skills or specialized knowledge that may not exist in-house.
3. Flexibility: Employers can scale their workforce based on project demands without onboarding permanent staff.
4. Reduced overhead: No need to provide office space, equipment, or training for independent workers.

Disadvantages of hiring contractors and freelancers

1. Limited control: Contractors operate independently, so employers have less influence over how tasks are completed.
2. Compliance risks: Misclassifying workers can result in legal penalties and tax liabilities.
3. Potential lack of commitment: Contractors may prioritize other clients, leading to less consistent availability.

How to hire a freelancer or contractor

1. Define the scope of work: Clearly outline project goals, deliverables, deadlines, and skills required.
2. Set a budget: Research market rates and determine a fair compensation structure.
3. Find candidates: Use freelance platforms, referrals, or job boards to source talent.
4. Evaluate candidates: Review portfolios, conduct interviews, or request sample work.
5. Draft a contract: Include terms such as payment schedules, confidentiality clauses, and termination conditions.
6. Onboard effectively: Provide access to necessary tools and resources while maintaining compliance with local labor laws.

How to pay a freelancer or contractor

Payment methods vary based on location, agreement, and preferences. Common options include:

• Bank transfers or wire payments
• Digital wallets (e.g., PayPal)
• International money transfers
• Cryptocurrency for global freelancers (in some cases)
  Clear invoicing processes and timely payments help maintain good relationships and ensure compliance.

Managing compliance when hiring contractors

To avoid misclassification risks:

• Clearly define the independent nature of the relationship in contracts.
• Regularly review labor laws, especially when hiring internationally.
• Consider using a third-party service like an Agent of Record (AOR) or Employer of Record (EOR) to manage compliance, payments, and contracts for contractors across borders.

Building a contingent workforce strategy

Employers increasingly leverage contractors and freelancers for flexible workforce solutions. By implementing clear contracts, tracking deliverables, and ensuring compliance, businesses can effectively integrate independent professionals into their teams while reaping the benefits of cost savings and expertise.