Transferring the workplace from the office to people's homes is the reality nowadays. It provides benefits for both parties: the employers and the employees. These are increased flexibility, improved work efficiency, less traveling time, less stress, and distractions for the workers.
When it comes to the individual, though, it is essential to consider several factors when deciding the type of job you will strive for. More particularly, the choice is between a freelancing career and a job on a Labor contract.
What is the difference between an Individual contract and a Labor contract?
Suppose you decided to work from home and are considering an opportunity from an employer offering you a Labor contract. In that case, this can provide some limitations to your time, routines, and salary.
On the other hand, Individual contracts are more flexible regarding schedules, holidays, and changing jobs/projects. Let's have a look at this table:
Labor Contract vs Individual Contract
| Features | Labor contract | Individual contract |
|---|---|---|
| Tax and Insurance | The employer pays for taxes and insurance | The employee is responsible for tax-related fees |
| Working Time | Fixed schedule | Flexible working hours |
| Quitting the job | Requires 1-month notice* | Can quit any time |
| Time off and vacations | Paid leaves and sick leaves | Unpaid leaves anytime |
| Salary | Fixed payroll | Varies per project and skills |
| Security | A stable job with less risk | Less secure job based on results |
| Variety | Daily routine with the same tasks | A variety of projects and clients |
*This period can be over a month, depending on your Labor contract.
Tax and Insurance
When working on a Labor contract, the payroll accountants of your company take care of all documentation related to your salary. They prepare the paycheck for you, including taxes you owe/your employer owes to the government, any insurance fees deducted from your payment, amounts added to retirement accounts, and depending on your country - a few other taxes. What needs to be reduced is determined by national laws. The Labor contract you signed represents your agreement with the company's policies.
On the other hand, an individual contractor is responsible for doing this on his/her own. If the projects you work on are relatively small, you can be your own accountant and prepare/pay those taxes yourself. If you are involved in high-impact projects and are busy dealing with documentation yourself, hiring someone (a professional accountant) is always an option. An additional bonus here is that you can opt-in to pay only mandatory taxes and fees and leave the rest.
Working Time
An employee on a Labor contract can expect a fixed schedule (9 am to 5 pm, 4 pm - 12 am) depending on the time zone. A work-from-home opportunity on a fixed schedule is similar to an office job in terms of flexibility. On a full-time job, you must dedicate a certain amount of hours (usually 35 - 40 h per week) and complete them in the specified periods - 7 hours/5 days a week or 8 hours/5 days a week (excluding the weekends).
An Individual contract is more flexible. You can work full-time or part-time, depending on your availability. You can commit to a different amount of work each week/month and complete the job anytime as long as you are within the period before the deadline. For example, if you have a small project/task that you can complete for 20 hours and have two weeks to finish, you can work 4 hours for 5 days on any day during these two weeks. This allows more freedom in deciding on your spare time and breaks and choosing to work when you are most productive.
Quitting the Job
Signing a contract with a company and becoming their employee comes together with loyalty. You agree to stay with them for the contract term (from 6 months to 5 years), and during this time, you will not sign Labor contracts with other companies. If you change your mind and want to quit for any reason (issues in the workplace, finding a better opportunity), you will have to file an advanced notice, usually 1 month. During this period, you let your employer find a replacement for you. Your contract might also state that you owe compensation if you quit before the term expires if you made a deal with your company to support you for your education.
Individual contractors can start and leave projects anytime as long as they follow deadlines and quit without causing any unfinished tasks to be left out. Once you finish your task/project, you can choose not to accept further opportunities. The same is valid if you decide to join again after leaving. You can do this anytime. No one is holding you responsible for your choice. This is psychologically much more liberating and can lead to boosted productivity.
Time off and Vacations
Regarding the time you will not work and have a break, both Labor and Individual contracts have their advantages. In a Labor contract, you will have a fixed paid and sick leave. This means that you will have a certain amount of days that you will not work during the year (usually 20 - 25 days), and you can plan them ahead of the year or at the beginning of the year, considering the company's needs for availability. In the scenario that you get sick, you are also paid for the amount and time provided by the national laws of the country you reside in.
On the other side of this story is the Individual contract, which does not pay for your leaves. You can have a holiday or a vacation any time, but this time is not counted as you are not working. Giving an advance notice for a break is recommended, but providing it at the beginning of the year is optional. Usually, 1 - 2 weeks ahead is enough. Payment is per project/per task/per hour. If you are sick, you can stop working until you fully recover, but a salary is not offered.
Salary
Here comes one of the most critical factors. The employees of a company have an agreement about a specific salary, which can be raised in time through the years, but in general, it only provides a little flexibility. Bonuses can be offered and added, plus additional amounts due to inflation. However, the general rule is that the wage is limited.
Working as a freelancer would provide almost unlimited opportunities. You can choose among different companies, customers, projects, and tasks with variable payments. Bonuses are also available for specific projects, but you can take on work for a higher salary as you grow in freelancing. It all comes down to the skills and professionalism you can offer in return.
Security
Having a contract protected by all labor laws provides stability and security. If the employer is unhappy with your work, he/she has to follow procedures and document all of this information to take steps against you. You cannot be fired for no good reason, for example. You have protection for many real-life situations like pregnancy, maternity, and work accidents - all covered by labor laws.
An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement.
It is not strictly and explicitly guaranteed that you can stay on a project if you don't perform well. If you don't bring good results and don't contribute to the project's success, the company/client can always find a better replacement. You will not get financial support for any personal/health-related issues you might have unless you work with a company that provides it as a bonus. Your health can be improved if you participate in a well-being program supplied by your company.
Variety
The tasks and daily routine you will encounter will be very similar and repetitive. Your professional growth is limited after mastering a specific job. If you are good enough and there is an available spot, you can be promoted higher in the hierarchy for a better salary and increased responsibility. Only some employees can have the luck to meet this combination of conditions.
Since you will be working on many projects and tasks, the variety for a freelancer is large. It comes down to the type of person you are. If you embrace change and novelty, freelancing is definitely your way to go. On the contrary - if you find it challenging to adapt to new situations and solve new issues as they arise, you might feel challenged and even overwhelmed by the job.
Very helpful post! I think you did a fantastic job of separating the two in a straight forward way because it's not easy to understand before you do it. Thanks for sharing this!
ReplyDelete