How Freelancing Differs From Contracting and Agency Subcontracting

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Let’s get real for a minute. You can learn and apply new skills as a freelancer, but you’ll need to be more strategic than “just get started and raise your rates as you learn more”. That LinkedIn Solopreneur-Hype-Bro’s advice sounds like practicing on client projects to me — and the surest way to earn yourself a bad reputation in your industry.

When I first started freelancing, I had two years of experience in marketing but a limited portfolio in the direction I wanted to take my career.

My Personal Two Cents

Without a portfolio, I built relationships with agency owners who saw my thirst for learning and took me under their wing as a contractor. This allowed me to upskill under them and ultimately produce outstanding work for their clients — and later for my own. I also gained valuable exposure to their processes which helped me improve mine.

Working for an agency as a contractor or subcontractor is a great way to gain experience, improve your skills, and craft your portfolio. But it’s important to understand that the value you gain from their systems likely means a lower paycheck.

To prepare for a transition from full-time employee to full-time freelancer, you’ll need to understand some nuances in the terms freelancing, contracting, and subcontracting. Beyond definitions, though, I want to show you how these terms relate to the relationships you develop in your industry and ultimately help you maintain realistic expectations on payments. 

Freelancing vs. Contracting

In the eyes of the IRS, freelancing and contracting are synonymous. Both freelancers and contractors are 1099 self-employed workers. The engagements in your industry under these two terms may differ, however.

From my experience contracting with marketing agencies, contractors are viewed as someone they plan to engage for ongoing work. A freelancer, however, might only work on a project-by-project basis with any guarantee of continued work. 

Agency Subcontracting

If you are trying to acquire new skills as a freelancer, contracting through an agency is a great way to learn quickly. They typically have systems already in place, no shortage of client work, and often look for junior workers to keep costs low.

If you are performing work for the agency’s clients, you are technically a subcontractor meaning you won’t be handling clients directly. Since you are one person removed, you also won’t have the same income potential that taking on your own clients would.

If you want to freelance but aren’t jazzed by the idea of working with clients directly, subcontracting long-term may be just the answer for you. 

For many, contracting or subtracting with an agency works well in the beginning while gaining confidence before taking on their own clients. Personally, contracting through multiple agencies helped me transition from full-time employment because it was reliable work that I could seemingly scale up or down as I wanted while I got my freelancing feet under me.

Freelancer, Contractor, & Employee Comparison

I put together the chart below to explain the distinctions between freelancers, contractors, and employees. In the Opportunity for Unemployment category, you’ll see “misclassification” mentioned. That one requires more information — find more details on that in the following section. 

Self-Employed FreelancerSelf-Employed Agency ContractorEmployee
U.S. Taxes1099 Form1099 FormW-2 Form
Employment BenefitsNoneNoneDepending on the position may have health, vision, dental, PTO, paid holidays & more
Length of EngagementOften operate on a project by project basis. Can end at any time by either partyA temporary relationship with a set length of contract (monthly, 6 months, etc.)An ongoing relationship with employer
Opportunity for UnemploymentNoNo, unless you can prove the company misclassified you as 1099 when you were performing the duties of a W-2 employeeVaries case by case
Control Over ScheduleComplete control over your own scheduleTypically a set number of hours per week or monthEstablished by the employer
Company Email, Business Cardsnonoyes
EquipmentSelf-suppliedSelf-suppliedTypically company supplied

What To Do If You’ve Been Misclassified

If a company classifies you as a contractor, but you believe you were actually performing the duty of an employee, you should first discuss your concerns with the employer, then contact the IRS.

Stephen Fishman, J.D. from Nolo advises: “Get the IRS Involved. If trying to talk to your employer doesn’t work, you can contact the IRS. Workers who believe they have been misclassified as independent contractors may request that the IRS determine their employment status for federal tax purposes by filing form IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. There is no fee for filing.”

If you believe you were misclassified as an independent contractor while performing an employee’s duties, you could be owed unemployment. The consequences of being paid as a contractor are steep — you’ll pay all of your Social Security and Medicare taxes, no retirement, no benefits, and the list goes on.

From contractor to contractor — it’s worth it to know your rights.

I hope you’ve found this article helpful in navigating self-employment terminology. 

Connect with me on LinkedIn and let me know how your freelance journey is going. 

All the best! 🚀

Becca Peterson

Becca Peterson is a freelance content marketing strategist from Iowa. Her work increases website traffic with relevant, helpful information that translates to trust and, ultimately sales for her clients. She works across industries including digital marketing, integrative health & wellness, parenting, and education. Connect with her on LinkedIn at https://www.linkedin.com/in/content-strategist-becca-peterson/

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Becca Peterson

Becca Peterson is a freelance content marketing strategist from Iowa. Her work increases website traffic with relevant, helpful information that translates to trust and, ultimately sales for her clients. She works across industries including digital marketing, integrative health & wellness, parenting, and education. Connect with her on LinkedIn at https://www.linkedin.com/in/content-strategist-becca-peterson/

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