What is Freelancing? Basics, Pros and Cons for 2023

Introduction

For many people, the thought of freelancing is incredibly appealing. After all, what could be better than setting your own hours, being able to work from home, and being your own boss? 

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However, getting started at freelancing can be really intimidating. You might have a hard time finding steady work. It could be difficult to motivate without the structure of a nine to five. And insurance? Forget about it.

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But that doesn’t mean freelancing isn’t worth it — for some people, it’s absolutely the best career choice. So let’s take a look at what freelancing is, how it compares to working full time, and some pros and cons of going freelance.

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What is freelancing?

Freelancing is the act of working for oneself instead of an employer. Freelancers can work in a variety of fields and industries, and the term is often used interchangeably with “independent contractor.” 

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In recent years, there has been a growing trend of people leaving traditional jobs to freelance, and the rise of the gig economy has made it easier than ever to find work on a per-project basis. Some common types of freelancing roles include, but aren’t limited to:

• Writers
• Designers 
• Engineers
• Graphic designers
• Video producers
• Video editors
• Photographers
• Editors
• Social media managers
• Accountants
• Recruiters 
• Lawyers 

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How does freelancing work? 

Because freelancers choose their own clients and make their own schedules, freelancing can be either a full or part time job. Some freelancers work as a side hustle to support their main income from a full time job, while others get enough clients (or one or two high-paying or long term clients) to support them full time. 

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In order to be a freelancer, you have to find your own clients. Many people utilize their existing networks to find work, but sometimes that’s not enough. In those circumstances, freelance marketplaces like Fiverr, Upwork, 99designs, and Flexjobs, where clients go to hire freelancers, are a great option. There are also freelance websites that cater to specific types of freelancers, like Problogger for writers or Dribbble for designers.

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Legal requirements for freelancers 

When you’re a freelancer, you’re also a business owner who wears all the hats and performs all the roles that would normally be performed by entire teams at a larger business. One of those roles? Legal stuff. Here are a few legal considerations you need to make when you decide to go freelance.

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1. Drafting a contract

Contracts exist to cover both and the client in all scenarios — especially the bad ones. This document will protect both you and your client by laying out the expectations for the project, including timelines, deliverables and payment terms. Even if you're working with someone you know and trust, it's important to have everything in writing to avoid potential misunderstandings down the road.

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So what goes into a freelance contract? First, you'll want to include basic information about the parties involved, as well as a description of the project. Be as specific as possible here to avoid any confusion later on. Next, you'll need to outline the scope of work, including deadlines and deliverables. Again, being clear and concise will help prevent misunderstandings. 

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Finally, you'll need to agree on payment terms, including how much you'll be paid and when. Once everything is agreed upon, both parties can sign the contract and get to work.

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A good place to start with drafting a freelance contract is by finding a template online that fits your industry and that you can adapt to your specifics. You can also check out the Pollen Playbook on how to create a freelance contract.

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2. Choosing a legal entity

As a freelancer, you have many options when it comes to choosing a legal entity. If you're looking for the simplest option, you can choose to operate as a sole proprietor. This option is best for those who are just starting out and don't have much income. However, there are some downsides to operating as a sole proprietor. For example, you will be personally liable for all debts and liabilities incurred by your business. This means that if your business is sued, your personal assets could be at risk. 

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Alternatively, you could choose to form an LLC. This option provides some personal liability protection, but it can be more expensive and complicated to set up. Ultimately, the best legal entity for your freelance business depends on your specific circumstances. You can also talk to an accountant or lawyer to get started or check out our Playbook on the topic.

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3. Figuring out business insurance

When it comes to business insurance, freelancers often find themselves in a bit of a gray area. On the one hand, they are not eligible for the same type of coverage as traditional businesses. On the other hand, they still face many of the same risks as other businesses. 

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So how do you figure out what type of business insurance you need as a freelancer? The first step is to assess your risks. Ask yourself what could happen that would cause you to lose money or be unable to work. Once you have a good understanding of your risks, you can start shopping for policies that will cover those risks. The most important thing is to make sure you are properly covered in case something does go wrong.

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4. Paying taxes

Paying taxes is one of the least fun parts of being a freelancer, but it doesn’t have to be complicated. The first step is to set aside money throughout the year so you’re not scrambling to come up with a large sum all at once. You can do this by setting up a separate account for your taxes or simply transferring a percentage of each payment you receive into savings. 

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Once tax time rolls around, you’ll need to calculate your taxable income and file a return. If you’re not sure how to do this, there are plenty of online resources — including our Playbook on the topic — and tax software programs that can walk you through the process. 

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Differences between freelancing and a full time job

Work for yourself — or work for someone else? 1099s — or W-4s? Clients — or managers? Here are some of the biggest differences between taking on freelancing jobs and having a full time job.

• Flexibility. Freelancers have more control over their schedules than people who are full-time employed do. They can often take on projects that fit their availability and interests. Full-time workers typically have less flexibility, as their schedule is set by their employer.
• Stability. The common perception is that full time work is more stable than freelancing, but that’s not necessarily the case. A freelancer has a diversified income, which means if they lose one client, they have others they can rely on. On the other hand, if a full time worker loses their job they have no income. However, that can mean that the amount of money they’re making isn’t as stable as a full time worker, who has a stable, regular salary.
• Benefits. Benefits are another key difference between freelancing and full-time work. Freelancers are not typically eligible for benefits like health insurance and paid vacation days. Full-time workers usually receive these benefits from their employers.
• Motivation. Being a freelancer takes a lot of self motivation, because you’re not on anyone else’s clock and no one else is going to assign your work. You have to choose to expend the energy to not only drum up work, but to show up to work without being accountable to a boss every single day. On the flip side, full-time employees are able to hand over much of that responsibility to their boss.

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Pros of freelancing

Taking the jump into freelancing can be intimidating, but there are some major pros to sweeten the deal. 

• Choose your own hours. Perhaps one of the biggest pros of freelancing is being able to choose your own hours. It can backfire, of course, if you’re prone to overworking, but there’s real potential to have a good work life balance and a lucrative career.
• Choice of clients. You also get to choose your own clients, which means you get to decide what work you want to do. There’s much less chance of being bored or annoyed when all of your work is work that you’ve picked yourself. (You can also fire bad clients, which you can’t really do with a bad boss…)
• Learn new skills. Because freelancing requires you to basically act as an entire company on your own, you’re always learning new skill sets. That could include anything from drafting contracts to new creative skills to building a website.
• Diversity of work. If you’re someone who’s easily bored, freelancing might be for you. You’re constantly talking to potential clients, bringing on new clients, and taking on new challenges, which can be very fulfilling for people who thrive with change.
• Set your own rates. You also get to decide how much you get paid, which is a big difference from a full time job. Pro tip: Always ask for at least 25% more than you think the client will agree to and let them know you’re willing to negotiate. It’s a great way to start building up your rates.

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Cons of freelancing

But as great as freelancing can be, there are also some potential downsides. Here are some of the cons experienced by many freelancers.

• Isolation and loneliness. Working for yourself oftentimes means working by yourself, and freelancing can get really lonely. Some freelancers choose to join coworking spaces in order to get that social contact that they’d otherwise get at their jobs.
• Job security and unsteady income. Freelancers have a lot fewer legal protections than full-time workers. You can be fired at any time, for really any reason. There are also, unfortunately, clients who don’t pay on time or even don’t pay at all. Both of those factors can make freelancing stressful.
• Difficult clients. Speaking of not getting paid on time, clients can be an entire downside on their own. Whether it’s not being clear about needs, demanding work beyond the scope of a contract, or being late with payment, every freelancer has a bad client horror story.
• Have to learn a lot of new skills. Some people love the act that freelancing requires learning a bunch of new skills, but for others it’s a downside. Having to do everything from finding new clients to learning how to do freelance taxes to building a website can feel like a lot (But don’t worry: we have a Playbook for that.)
• Administrative overhead. One of those new skills is being your own administrator, which means taking care of stuff like writing contracts, paying your own taxes, and doing your own marketing. But, unfortunately, you’re going to have to do that work without pay, as most administrative work falls under the category of non-billable hours.
• Lack of employer-provided benefits. Full-time employees get benefits from their employers, like health insurance and 401k matching plans. But, unfortunately, freelancers have to figure that stuff out on their own.

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Summary

So there you have it: everything you need to know about freelancing. Now that you know what it is and how it works, you can decide whether or not it's the right career path for you. 

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Just remember that freelancing comes with its own set of pros and cons. On the plus side, you'll have the freedom to work from anywhere and set your own hours. But on the downside, you'll have to deal with the occasional client from hell and there's no such thing as paid vacation days. 

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If you're still not sure whether freelancing is right for you, the best way to find out is to give it a try as a side hustle. After all, there's no harm in dipping your toe in the freelance pool to see if it's a good fit. Who knows? You might just find that freelancing is exactly what you've been looking for all along.

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