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Freelance, contractor, work-from-home vs digital nomad: What’s the difference?

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Over two decades ago, many jobs that required a computer and a connection to the Internet required dedicated office space. A variety of professionals, including data entry specialists, writers, editors, accountants, HR personnel and even graphic artists would congregate in a work environment to perform their tasks.

Then computers got smaller; computer memory got larger; Internet connections got faster and far more plentiful and, almost overnight, it was quite possible for many professionals to work from just about anywhere.

While some firms embraced remote-working options early on  — we did at Zolo! — many stuck to the predefined concept of a centralized office location. Then COVID-19 hit and, quite suddenly, shared space became a potential health hazard.

Almost overnight, the number of people working from home ballooned and many firms began to consider how best to facilitate workplace collaboration with health-ministry imposed social distancing rules.

The people that paved the way for many of the work-from-home strategies were the brave freelancers, contractors and self-employed; people who eschewed the comfort and familiarity of an office or cubicle in order to be in complete control of their workspace.

Now, more people face uncertain employment even as the world grapples to find ways to do business while maintaining social distance. As a result, there’s been renewed interest in self-regulated work schedules and space. To help you navigate, here’s a primer on the what the difference is between freelance, self-employment and contract work (and everything else in-between). Read on to learn almost everything you need to know about:

  • The definitions of freelancer, contractor, self-employed, solopreneur and digital nomad;
  • The definition of work-from-home;
  •  Why the correct classification matters;
  • The key differences between these work-from-home designations summarized in a table;
  • How to determine your status

What is freelancing? Definition of a freelancer

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Freelancing is defined as a contract-based work where the freelancer uses her skills to provide goods or services to several clients. That means a freelancer can work with several clients, at the same time, as long as the freelancer has the capacity to deliver what is required (on-time and on-budget, as they say).

Typically, a freelancer is somebody who will work on many short-term contracts at the same time. Even if the freelancer works on retainer with some clients — a retainer is an amount of money paid upfront to secure the services of the freelancer — the freelancer can still seek out and take on additional work, as their time and capacity permits.

In North America, the term freelancer has typically been applied to people who do creative contract work. In this way, a freelancer will work on projects (also called gigs), typically work alone and either work-from-home or their own chosen workspace.

What is a contractor? Definition of a contractor

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If you’re wondering what the difference is between a freelancer and a contractor, you are not alone. Type this search into Google and more than 51.5-million search results will pop up.

Just like a freelancer, a contractor is not an employee of a company. Neither a freelancer nor a contractor will receive the benefits associated with employment, such as healthcare benefits, a retirement savings packages, a compensation package (if let go or retiring), or taxes are taken off their pay at the source (meaning, there is no employer to hold back taxes).

However, there is one major difference: Contractors typically work for one client at a time and typically for longer periods of time. For instance, an insurance firm may hire a data entry specialist on a 12-month contract. This contractor would not work for any other client and may even be required to come into the client’s office.

How is a freelancer different from self-employment (or a solopreneur or business owner)?

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Both freelancers and contractors are also self-employed. However, how each obtains a client determines which classification is appropriate to use.

The freelancer focuses on getting new clients; the self-employed worker focuses on producing their good or service.

That’s because a freelancer takes on a variety of jobs from a variety of clients; the focus of a freelancer is to get additional work, either through the same clients or by attracting new clients.

While a self-employed person will focus primarily on a certain line of work, such as producing cupcakes or developing code, which attracts new and returning customers.

While the classifications tend to overlap and blend, the term self-employment tends to imply a sense of individualism, while the term freelancer implies working for multiple clients.

(To be clear, a business owner is also self-employed, but owns a business that is usually defined by its own space and/or identity. The term solopreneur only came into use in the 1990s and identifies a business owner that set up the business by themself.)

What is a digital nomad? Definition of a digital nomad

digital nomad

Digital nomads live a travel-heavy lifestyle, moving from one location to another while staying connected to the world digitally. Their jobs are location-independent allowing them to work remotely from anywhere. away from the company’s physical office. Digital nomads rely heavily on WiFi and the ability to connect to the Internet. As a result, digital nomads focus on developing work habits that enable them to get online when and where required.

What does work-from-home (WFH) and telecommuting mean?

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To muddy the waters, the term work-from-home is typically only applied to employees who use their home space to complete their work duties rather than the company office. Other terms for work-from-home (WFH) include: telecommuting, telework, teleworking, mobile work, e-working, mobile work, virtual jobs and remote work.

For most telecommuters, technology is key. Using a WiFi connection, telecommuters can use online platforms, such as Zoom or Slack to connect with an employer or colleagues.

Some of the most popular telecommuting jobs include:

  • Content writers
  • Web developers
  • Social media managers
  • Graphic designers
  • Accountants
  • SEO specialists

While telecommuting options are now offered across multiple sectors, there are still a number of jobs that cannot operate remotely, such as security guards, logging-truck drivers, and those who work in the trades.

The pros of telecommuting

Some of the benefits of being an employee and a telecommuter are:

  • More flexibility with your daily schedule;
  • Reduced commuting costs;
  • Increased employee retentions since employees report being happier than their counterparts;
  • Boost in productivity.

The cons of telecommuting

There are a few drawbacks that could affect both the employer and the teleworker:

  • Loneliness due to isolation;
  • Technical issues may cause communication breakdown;
  • Harder to monitor day-to-day activity and productivity.

What is a flexible workplace?

A flexible workplace is when an employer is flexible about how work can be completed. For instance, an employee may negotiate to commute to the office (or warehouse or store, etc.) only two days a week and the remaining three days a week the employee will work-from-home.

Why do all these different designations matter?

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Who cares what I call myself, right? The tax collector cares.

Thankfully, the only real concern is whether or not you are classified as an independent contractor or freelancer when, in fact, you are an employee.

To understand why, consider how each worker classification ranks based on 10 criteria, as seen in the table below (scroll left to see how all 10 criteria impact each designation):

CharacteristicFreelancerContractorSelf-employedBusiness OwnerRemote workerDigital NomadEmployee
Employment StatusSelf-employedSelf-employedSelf-employedSelf-employedEmployeeSelf-employed Works for one company
ControlFull control of work and scheduleCan have full control over work and schedule, or may have a client that exercises some controlFull control of work and scheduleCan have full control over work and schedule, or clients (or market) may demand specific operating times Employer exercises some control over the work and scheduleFull control of work and scheduleEmployer exercises some control over the work and schedule
Number of clientsSeveral at onceWorks for several, but usually not all at onceCan work for one client or manyTypically works with many clientsWorks for one client (company that employs the remote worker)Can work for one client or manyWorks for one client (company that employs the remote worker)
Work hoursFlexible work hoursCan have set work hours as per client contract of flexible work hours Flexible work hoursWork hours dictated by client demands for business goods and servicesGenerally set work hours, as per employment contractFlexible work hoursGenerally set work hours, as per employment contract
Place of workRemoteClient's office or remoteRemote or at business spaceBusiness spaceRemoteRemoteAt the company office or place of work
Project DurationShorter projects Longer projectsShort or long projectsWorks at specific good or service, onlyShort or long projectsShort or long projectsShort or long projects
Tax responsibilityResponsible for paying own taxesResponsible for paying own taxesResponsible for paying own taxesResponsible for paying own taxesCompany withholds and remits taxesResponsible for paying own taxesCompany withholds and remits taxes
Benefit responsiblityResponsible for own benefitsResponsible for own benefitsResponsible for own benefitsResponsible for own benefitsCompany can provide benefits (premiums are typically deducted from paycheque)Responsible for own benefitsCompany can provide benefits (premiums are typically deducted from paycheque)
EI eligibility Not eligibleNot eligibleCan access EI Special Benefits (such as parental benefits, sickness benefits, compassionate care benefits, etc.) as long as you are registered for EI 12 months prior to the claimNot eligible (unless registered and paying into EI for at least 12 months before claim is made)EligibleNot eligibleEligible
Rate decisionSets own ratesSets own ratesSets own ratesMarket dictates price of goods or services; business owner determines own salary or rateNegotiated (salary or hourly wage) as per employment contractSets own ratesNegotiated (salary or hourly wage) as per employment contract

How to determine your status

The good news is that the Canada Revenue Agency (CRA) does not treat contractors, the self-employed, solopreneurs or freelancers any different, from a tax perspective. You will have to report all income and claim any deductions related to earning the income using Form T2125: Statement of Business or Professional Activities.

However, if you are an employee (or a digital nomad that spends more than 181 days out of the country) you will need to report income and taxes for your appropriate worker (or resident) classification. For more on taxation and digital nomads, see What you need to know about T2200 and work-from-home tax deductions.

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Romana King

Romana King is an award-winning personal finance writer, real estate expert and the current Director of Content at Zolo. Romana has contributed to business and lifestyle publications including CBC.ca, Toronto Sun, Maclean’s, MoneySense, Globe & Mail Custom Content Team, and The Toronto Star. Among her achievements, Romana won silver for her annual Where to Buy Now real estate package in the 2019 Canadian Online Publishing Awards. In 2015, she won a SABEW Business Journalism award. When she was editor of CI Top Broker, Romana helped guide her team to obtain its first KRW Business Journalism nomination, and in 2011, she was part of a small team that helped MoneySense win Magazine of the Year at the 34th annual National Magazine Awards.