There’s been a massive shift in the workforce over the past decade as more and more people are working as freelancers. But what is freelancing exactly?
Freelancing isn’t a buzzword or trend. It’s a legitimate work situation that describes those who are hired by other companies to work as independent contractors. According to a study by Upwork, 59 million Americans freelanced in 2021.
What is freelancing?
Freelancing is when a self-employed person offers paid services to their clients. Freelancers work for themselves and contract out their services to one or more clients. They are able to work for as many clients as they’d like, unless they have a contractual agreement that states otherwise.
Upwork’s new freelancing report, besides an increase in freelancers from 57 million in 2019 to 59 million in 2021, had other significant findings:
- Freelancers contributed $1.3 trillion to the economy.
- 68% of new freelancers say “career ownership” is the top draw for them.
- 78% of remote freelancers says “schedule flexibility” is their main draw.
- 44% of freelancers say they earn more freelancing than at a traditional job, which is up from 39% in 2020 and 32% in 2019.
The term “freelance” has a surprising history that dates back to the early 1800s. It was used to describe a mercenary who fought for whichever person or nation paid the most. One of the first published uses is in Sir Walter Scott’s novel Ivanhoe:
I offered Richard the service of my Free Lances, and he refused them—I will lead them to Hull, seize on shipping, and embark for Flanders; thanks to the bustling times, a man of action will always find employment.
Other terms for freelancing
There are a lot of different terms to define freelance work. It can get a little confusing if you’re not familiar with the language, but the following terms all describe working as a freelancer:
- 1099 employee/job: This comes from the tax form, a 1099-MISC, that most freelancers have to fill out at tax time. We’ll get into the tax implications of freelance work further down in the article, don’t worry!
- Independent contractor: This is how the IRS classifies freelance work. It’s the most formal or official way to say freelancer.
- Contract work/job: You enter into a contract to provide work for your client for a certain period of time.
- Contract-to-hire: There’s a potential for the freelance job to become a full-time position at the end of the contract period.
You’re seeing a lot of “contract” or “contractor” in those terms, and that’s important to remember. Freelancers enter into a contractual agreement to fulfill a job, and the client is contractually obligated to pay for their services.
What type of work do freelancers do?
A couple of decades ago, most of the freelance work available was for art and design jobs, like photography, writing, graphic design, illustration, and more. Now, skilled services in marketing, IT, and business consulting make up 45% of the freelance workforce.
Here’s a list of the most common freelance work:
- Web development and design
- Teaching and tutoring
- Freelance writing
- Digital marketing
- Graphic design
- Mobile app development
- Search engine optimization or SEO, SEM (search engine marketing)
- Branding and PR
- Administrative support/virtual assistance
- Bookkeeping and accounting
- 3D modeling and CAD
- Medical transcription
- Web research
- Legal services – consultants, paralegals, legal transcription
- Customer service
- Social media manager
- Project management
- Audio production/design
- Data entry
- Human resource management
The freelance jobs in these fields aren’t just entry-level — according to that same Upwork study, skilled remote freelancing is on the rise, 53% up from 50%.
How do I start freelancing?
Deciding to become a freelancer can be one of the most empowering things you can do professionally. And now that you understand what is freelancing, let’s talk about how to get started.
Here are the 7 steps to start freelancing:
- Decide what service you’ll offer. Leveraging existing skills is an excellent approach, or you can look at what areas have a growing need for skilled workers.
- Determine your niche. Your niche is the industry you specialize in working with. Knowing your niche can help you pitch and land clients. You want to know what clients in that industry are looking for, the lingo, what service they need, how you can help, etc.
- Set your rates. There are different standards in each industry, from starting pay to how to charge (hourly, per project, or on retainer). Leaning on any previous experience will help you command a higher rate from the beginning.
- Start building your online presence. We highly recommend starting a website that tells potential clients a little bit about who you are, what you do, and lists your services. It’s a good point of contact, and you can keep a portfolio of your work and who you’ve worked with. Bluehost is an excellent option for creating a professional looking site for less than $3 a month.
- Market yourself. Networking in online spaces is a really good and inexpensive path, like joining Slack channels and groups on Facebook, LinkedIn, and Meet-Up. There are also freelancing platforms like Upwork and Fiverr.
- Keep track of your payments and taxes. Track your payments from day one because you may need to pay estimated quarterly taxes, and it’s recommended that freelancers set aside 30% of their income for taxes.
- Always deliver high-quality work. Set your standards from the beginning for both the work you do and how you interact with your clients. This is how you keep good clients, scale your business, and increase your rates over time.
Want to learn more? Check out our article How to Start Freelancing for an in-depth look at each of those steps.
Freelancing and taxes
Once you start your freelance business, there are some important tax considerations you should know from the beginning:
- If you make more than $400, you must include this income on your annual tax return.
- Freelancers are responsible for self-employment tax of 15.3%, which is your half of Social Security and Medicare taxes. It’s the portion an employer would pay in a traditional employment situation.
- Instead of receiving a W-2 form from your employer, freelancers receive a 1099-MISC from every client who pays $600 or more.
- Freelancers who expect to owe $1,000 or more are expected to pay quarterly estimated taxes.
The benefits of freelancing
One of the reasons that freelance work is growing so quickly is that big companies are outsourcing work to independent contractors instead of keeping that work in-house. At the same time, there are some major benefits to freelancing, which is why more and more people are choosing it as a long-term option.
Let’s take a close look at the pros of freelancing:
The hours are flexible as heck.
Being able to set your own hours is major. You’re not tied to a normal 9-5 schedule, but you can work those 9-5 hours if you want.
This is one of the reasons I started freelancing. I was in college and raising three kids, so freelancing as a side hustle made much more sense than a traditional part-time job. I could work after my kids went to bed, on the weekends, or if I had a spare hour or two during the day.
Now that I’m a full-time freelancer, I hold normal business hours because it makes sense for me. Either way, the hours I work are my choice.
You work where you want.
This isn’t true for 100% of freelancers — some may have to go into a physical location to work. But for freelancers who work remotely, you can do it pretty much anywhere there’s a decent internet connection.
It’s incredibly inexpensive to start freelancing.
If you have a marketable skill, then you can freelance. It can be something related to your educational background, previous work experience, or a skill you’ve learned online — not all freelance jobs require a college degree.
There’s an increased demand for freelance work.
More and more big companies have started scaling back their teams because it’s cheaper to hire freelancers. You can still make a good living and earn what you’re worth, but it’s less expensive because employers aren’t required to offer benefits that come with traditional full-time jobs. Yes, there’s a downside to freelancing, which I’ll explain in a second.
Freelancing is a scalable business model.
As long as the work is available, you can scale up your income. This is a major benefit if your monthly budget is tight and you can fit in some extra hours. But you can also scale back if things come up.
You can set your own pay.
One of the hardest things that new freelancers face is how to charge for their services. But the reality is that if you are confident in your skills and provide quality work, you can be compensated for what you’re worth.
Disadvantages of freelancing
We’ve really talked up the benefits of freelancing… we’re a little biased here… but the reality is that there are disadvantages. It’s important to weigh up the pros and cons before deciding if freelancing is right for you.
Here are the downsides of freelancing:
The work isn’t always consistent.
If you’re lucky, you find yourself with a long-term freelance client who has steady work for you. However, most freelancers go through dry periods when there’s not much work coming in. Or, you go through really busy periods where it’s hard to find any downtime.
This is the balance all freelancers face: working enough to prepare themselves for the down periods.
One of the best ways to find consistent work is to build strong relationships with your clients. Always deliver quality work and be willing to learn new skills to stay fresh and up-to-date.
You may struggle to find a happy work/life balance.
With flexible hours and the ability to work wherever you want, it’s really easy to keep working when you really should shut down your computer and turn in for the night. And because you know work isn’t always steady, you’re busting your butt to work when you can so you have a solid savings fund.
You’re responsible for your taxes, insurance, retirement, etc.
Employer benefits and tax contributions are non-existent in the freelance world. You have to withhold employer and employee taxes, usually around 30% of your take-home pay. You also have to find health insurance and set up your own retirement savings, like a Solo 401(k) or SEP IRA.
You will have to learn how to run a business.
This means learning the ins and outs of building and maintaining a website, networking, managing billing and invoicing, setting your hours, marketing your services, etc. Those are all things that are part of running a business, and there’s a steep learning curve for some people.
Not all clients are made equal.
Occasionally you’ll have a client who’s unhappy with your work. There’s inevitably one that takes forever to pay. And some clients are just difficult to work with. We’ve all been there, and you have to remember that there are more good clients in the world than bad ones.
It can take time to grow your freelance business.
Most businesses aren’t an overnight success, and that’s true even if you’re a one-person show. Getting to the point where you can support yourself and your family takes time. You need to have a steady client list, be able to manage your workload, stay organized, and be capable of weathering the bad times.
What should I know as a freelancer?
It takes time. I know I’ve said that already, but I can’t stress it enough. Freelancing is an awesome alternative to traditional employment, but building a successful business from the ground up is no small task.
So don’t quit your day job to start freelancing. Start freelancing as a side hustle. Learn how it all works. Improve your skills so you can command higher rates, build your client list, and learn how to be your own boss.
What is freelancing? The final word
There’s a bit of a dream when it comes to working for yourself. Make your own schedule, work when you want, be your own boss. That’s what freelancing means.
But it’s not all sunshine and rainbows. There are struggles like any other job, and because you’re the boss, you’re solely on the line if something happens.
Still, the benefits of freelancing far outweigh the negatives for me and most of the freelancers I know. Be willing to put in the work, challenge yourself to learn more, take time to appreciate the flexibility, and you’ll do just great.
When you’re ready to get started, check out our list of Best Online Jobs to find remote options for freelance work.
Freelance work is essentially when a person works for themself instead of for a company. Freelancers are independent contractors who provide contract work for any number of clients, as long as none of their clients have contracts that state otherwise.
Digital marketing, freelance writing, proofreading, graphic design, web development, virtual assistance, data entry, photography — these are all examples of freelance work, but it can ultimately be any skill that you can contract out to a company.
No, not at all. As long as freelancers comply with state and federal business laws and pay their taxes, they’re operating legally.