Why freelance?

Freelancing provides some of the freedom of working for oneself, while also allowing the freelancer to perform work under someone else’s business structure. For the freelancer, it means doing smaller, project-centered “gigs”, sometimes working outside of business hours and in their free time. For the company who hires freelancers, it is an opportunity to bring in an expert for a specific task, without having to onboard them, provide a benefits package, and then fire them when the task has been completed. It has the potential to be a win for both parties and is quite simple in nature: “Do this and get paid for it.”

During the COVID 19 pandemic, numerous online, freelancing gigs became more widely available. Since then, many employers have learned the benefits of hiring a freelancer; this means the “gig” economy is here to stay.

Types of freelance work

Upwork's freelancing platform makes browsing jobs simple. Source: Upwork.

For the technically minded, freelancing positions are available in software development, teaching and training, technical writing, CAD design, product development and testing, and numerous other fields. Currently, there is a need for freelancers in all of these fields and many more, making it a perfect way to highlight one’s areas of expertise, or to learn a new skill.

Freelancing jobs can be found through sites – such as Upwork – that provide secure payment processing and large databases of job types but these platforms do charge a fee. Alternatively, the freelancer can search on their own, shopping for projects through sites LinkedIn, former employers, professional contacts, and other methods.

Tax considerations

Most freelancers are performing freelance work for a secondary income. However, what starts out as a side hustle that brings in a little extra money may turn into a nightmare come tax season without the proper guidance.

Many employees work a “regular” salaried or hourly job because they enjoy the benefit of the W2 structure. Freelancing contracts, by contrast, are typically performed as “1099” work, meaning the employer takes out no tax, social security, etc. The freelancer of course still owes this money to the IRS but it isn’t as daunting as some might think.

For most freelancers, the best thing to do is to transfer between 15-30% of the gross pay into a savings account to set aside for these taxes. The range varies- if the freelancer is working a true side gig, where they have a W2 job and receive a tax refund each year, they can set aside a smaller amount. Freelancers that are totally self-employed will want to set aside a larger amount. Also, state and local agencies will want their cut from the earnings, and they vary by location. Some states also charge sales tax on the services and other miscellaneous taxes.

Legal considerations

Almost all freelancing jobs will specify, in writing, their expectations of the freelancer. Included in these documents are likely a “Non-Disclosure Agreement” (NDA) or some competitive market document. The NDA says that freelancers will not take information from one organization and use it for another.

Consider the problems that would occur if a freelancer was helping write code for a more fuel-efficient automotive computer, but then later worked at a competitor and used some of the same code. Furthermore, a freelancer does not have to directly expose trade secrets- they can accidentally release enough information that the competitor can figure out the rest. This latter case is called the “mosaic effect” and can cause just as much damage.

In either case, an NDA is a legal document to which the freelancer attests that they will keep information in-house. It may specify destruction or deletion of materials after a project has been completed. Failure to perform any step of this could result in legal action against the freelancer, so be sure to read these carefully.

There may also be a clause in the NDA, or as a separate document that forbids the freelancer from working for a direct competitor. This is to help minimize the mosaic effect and decrease the chances of an accidental information leak. This may be a strict ban on working for a competitor, or a declaration of conflict of interest (COI) that explicitly states which competitors and to what capacity are a risk. The COI may include the freelancer’s partner’s or family’s roles and may include customers or suppliers related to the business.

Consider the situation where a husband works as a freelancer making process improvements in manufacturing facilities, and his wife works as the sales manager for a raw material. It could be a major COI if the freelancer always recommends the materials provided by his wife’s company, especially if this is not disclosed ahead of time.

The use of AI

The growth of AI has both helped and hindered the gig economy. In many cases, the use of AI for content writing is forbidden, as no company wants to pay a freelancer to type in a few words, generate content, and then send a bill. This doesn’t mean it can’t be utilized at all, though; it can sometimes be used to look for plot holes, ensure writing is copyedited correctly, and other repetitive tasks that aren’t part of the creative process.

In programming applications, AI can sometimes be used more heavily. In a large programming task, AI can be used to write some subroutines and handle repetitive work. In some cases, companies who hire freelancers appreciate AI saving the freelance programmer time (and thus company money) for handing off the simpler tasks.

A few caveats: follow the guidance from the hiring organization. If they forbid AI totally, do not use it. Also, do not become too reliant on it, as it often produces incorrect or unrelated results. It’s important to remember that it is a tool, not a crutch. The synthetic division problem below highlights this issue:

ChatGPT erroneously calculated a synthetic division problem and provided an incorrect answer. Source: Seth Price.

The bottom line

Freelancing can become a career for the adventurous, or it can be a way to make some supplemental income while increasing one’s skillset. However, one should consider all of the pros and cons carefully and set up a financial plan before jumping into the freelancing world with both feet.