A freelancer is an independent professional who is paid for individual tasks or projects, rather than being a full-time or part-time employee of an organisation.
The term ‘freelancer’ has its roots in the word “freelance,” originally describing mercenary knights or soldiers who would offer their services to the highest bidder. Freelance work is commonly associated with fields such as journalism, acting, photography, illustrating, music, translation, and consulting, among others. However, you dont have to be a freelancer to have these professions.
The distinction between traditional employment and freelancing can be nuanced. Freelancers may receive payment either via an employer’s payroll—almost the same as to a regular employee—or they could bill their clients directly through invoicing. The classification of freelance work often hinges on several factors.
Key characteristics of a freelancer
Key characteristics of a freelancer in Australia:
- Independence: One of the most prominent features of a freelancer is their operational autonomy. Freelancers are self-employed and are working independently on a project-to-project basis. The independence makes it possible to select clients, work hours and time schedule. This gives freedom and is often one of the main reasons people want to work freelance.
- Professional expertise: Freelancers typically possess specialised skills or expertise in their field. This can be writing, graphic design, web development, consultancy, and many other professional vocations.
- Business structures: In Australia, freelancers often operate under a sole trader structure, which is the simplest type of business entity. It means they are the sole owner and are personally responsible for all aspects of the business, including debts and finances.
- Contractual work: Engagements are usually based on contracts or agreements. A contract should outline the scope of work, deadlines, payment terms, and other project-specific details.
- Multiple clients: Unlike traditional employees, freelancers typically work with a variety of clients over time, rather than being committed to a single employer.
- Financial management: As independent contractors, freelancers are responsible for their own finance. This includes setting rates, invoicing clients, managing business expenses, and accounting for their income tax and goods and services tax (GST), if their turnover exceeds the threshold that requires them to be registered for GST.
- Tax responsibilities: Freelancers must handle their own tax obligations. In Australia, this includes lodging an annual tax return and managing PAYG instalments. Depending on their earnings, they may also need to register for and remit GST.
- Workspace: Many freelancers work remotely or from a home office. Although some may rent space in co-working environments or operate from their clients’ premises as required.
- Legal and administrative duties: Freelancers are tasked with the legal and administrative aspects of running a business. This may include drafting contracts, maintaining records, and ensuring compliance with local business regulations.
Freelancing in Australia is marked by the confluence of professional service delivery and entrepreneurial self-management. It embodies a blend of skilled work, independence, financial acumen, and personal branding, framed within the regulatory landscape of Australian business and taxation law.
Difference between a salaried freelancer and a self-employed freelancer
A freelancer receiving a salary will have more formal rights and obligations than one who is paid via invoicing. Salaried freelancers are managed through an employer’s payroll system, negating the necessity for a business registration number (similar to an Australian business number or ABN). Furthermore, salaried freelancers are not required to maintain financial records, charge goods and services tax (GST), or file business-specific tax documentation. Their tax responsibilities are similar to that of a traditional employee, with taxes withheld by the employer being based on the individual’s tax file number (TFN).
A freelancer will often choose to have a sole proprietorship, as long as they dont have a lot expensive assets. This route usually involves managing their own financial records, paying GST if applicable and filing a more complex tax return that includes business income.
Tax obligations for freelancers
A freelancer’s tax liability in Australia is contingent upon their mode of compensation. Those on a payroll will have taxes deducted by their employer in accordance with the tax file number declaration. Freelancers operating as a sole trader are responsible for calculating and paying their own provisional tax in the form of Pay As You Go (PAYG) instalments.
Social rights and responsibilities
In Australia, freelancers generally have fewer social protections compared to formally employed individuals. For instance, they are ineligible for employer-funded sick leave, with benefits from Services Australia (formerly known as Centrelink) only becoming available after an initial waiting period. Freelancers without a salary arrangement do not accrue paid holiday leave and must independently secure their own workers’ compensation insurance.
Furthermore, it is incumbent upon freelancers to make personal arrangements for their retirement savings, typically via a superannuation fund.