What’s the difference between freelancers and contractors?

What’s the difference between freelancers and contractors?

Estimated Reading Time: 1 minute

There is no official “definition to differentiate a freelancer from a contractor. At least not from the perspective of the type of work either could undertake.

Someone who works through an online freelance agency still works to a (very) short term contract.

And how would a client who hires contractors describe the way said contractor works? Often, they’d say that he or she works on a freelance basis.

It’s easy to see how the lines blur.

However, that’s neither the case for a mortgage lender, nor us as their broker. There’s a very real difference between the way we appraise contractors and freelancers. It all centres around the nature of your contract.

A freelance contract, in our experience, would look like this:

  • work invoiced on a ‘per task’ basis;
  • cost to client (often) quoted per task;
  • no long term commitment between the two parties;
  • assignments ordered on an ad hoc basis;
  • worker responsible for raising, submitting and chasing invoices;
  • no set hours;
  • work at home or specific site, often under their own steam.

A contractor’s modus operandi is quite dissimilar:

  • work is invoiced on a per week or monthly basis;
  • cost to client is for the time, not the specific task;
  • commitment for three, six or twelve months;
  • assignments ordered through agency for specified duration;
  • agency responsible for invoices, based on a signed and submitted timesheet
  • hours coincide with client’s business hours;
  • contractor works on-site with client and employees.

In this sense, contractors do somewhat resemble employees. It’s this similarity that enables lenders to offer mortgages using contract-based underwriting.

True, that resemblance may cause problems in other ways, such as IR35. But in reality, your risk is no less than an employee who gets head-hunted once or twice a year. When lenders appreciate this, it’s what gives contractors an advantage.

For those freelancing, in our interpretation, all is not lost. Your accounts should demonstrate ongoing income, preferably rising year-on-year. It could be that you’re better off opting for a self-employed mortgage. Lenders will, however, base the amount you can borrow on those accounts, not on any current contract.

Author: John Yerou

John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.

Posted by John Yerou

on June 30th, 2015 07:08am in .
Last Updated on March 3rd, 2019 09:01am.

Estimated Reading Time: 1 minute

There is no official “definition to differentiate a freelancer from a contractor. At least not from the perspective of the type of work either could undertake.

Someone who works through an online freelance agency still works to a (very) short term contract.

And how would a client who hires contractors describe the way said contractor works? Often, they’d say that he or she works on a freelance basis.

It’s easy to see how the lines blur.

However, that’s neither the case for a mortgage lender, nor us as their broker. There’s a very real difference between the way we appraise contractors and freelancers. It all centres around the nature of your contract.

A freelance contract, in our experience, would look like this:

  • work invoiced on a ‘per task’ basis;
  • cost to client (often) quoted per task;
  • no long term commitment between the two parties;
  • assignments ordered on an ad hoc basis;
  • worker responsible for raising, submitting and chasing invoices;
  • no set hours;
  • work at home or specific site, often under their own steam.

A contractor’s modus operandi is quite dissimilar:

  • work is invoiced on a per week or monthly basis;
  • cost to client is for the time, not the specific task;
  • commitment for three, six or twelve months;
  • assignments ordered through agency for specified duration;
  • agency responsible for invoices, based on a signed and submitted timesheet
  • hours coincide with client’s business hours;
  • contractor works on-site with client and employees.

In this sense, contractors do somewhat resemble employees. It’s this similarity that enables lenders to offer mortgages using contract-based underwriting.

True, that resemblance may cause problems in other ways, such as IR35. But in reality, your risk is no less than an employee who gets head-hunted once or twice a year. When lenders appreciate this, it’s what gives contractors an advantage.

For those freelancing, in our interpretation, all is not lost. Your accounts should demonstrate ongoing income, preferably rising year-on-year. It could be that you’re better off opting for a self-employed mortgage. Lenders will, however, base the amount you can borrow on those accounts, not on any current contract.

Author: John Yerou

John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.


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