Freelancer, independent contractor vs digital nomad: Which to become in 2024

The year is 2024, and you are in control of your destiny. Gone are the days of suiting up and getting to the office 15 minutes early to show your boss how enthusiastic you are. So long to bad coffee from the office kitchen. Farewell to your manager breathing down your neck as you try to work. Adios to awkward water cooler chats with Bill from accounts. We live in the age of the freelancer, the independent contractor, the digital nomad. You have the power. And with power, comes great responsibility - to make sure your business admin is done correctly.

Millions of people every year are embracing the opportunity to take more control over their working lives, and make the most of the freedom that being a freelancer, a contractor, or a digital nomad can bring. If a client is kind of annoying, you can go find another one. Not loving the contract you’re on? Just a few more weeks, and you’re free to move on. Itching for some sun in the deepest, darkest days of winter? The Canary Islands are calling.

It all sounds good, but which route is right for you? What are the advantages of being a freelancer? Why should you be an independent contractor? Is being a digital nomad all that great?

Let’s take a look at the definition for each one, and then we’ll jump into a handy comparison table.

What is a freelancer?

The first “free lancers” were medieval mercenaries who would fight with their lances (spears) for whichever king, lord or warlord paid them the most. Today’s freelancers are pretty much the same, just without the weapons.

Generally their own boss, freelancers provide services to clients often on a project-by-project basis, although some do work shifts. They may work primarily for one main client, or work for a number of clients at the same time, or bounce from client to client. The crucial thing to understand is that they are essentially self-employed.

You can freelance in many industries, but some of the most common freelance occupations are things like writing, website design, programming, consultancy, virtual assistants, or video editors. If you’re considering becoming a freelancer, take a look at the kind of jobs being offered on platforms such as Upwork, Fiverr or Xolo Nation and see if you have the skills or experience to provide those services.

What is an independent contractor? 

Often experts in their field, independent contractors are - as the title suggests - contracted for a certain period of time to provide services to a company or organization. They are usually taken on to ensure a longer term project is completed to the client’s satisfaction, and a typical contract lasts between three and 12 months. 

The contract is fixed term, so once it is completed, they will often move on to the next client, get a new contract with their current client, or take a break.

What is a digital nomad?

This one’s for the jetsetters. There are currently an estimated 35 million digital nomads living the high life in co-working spaces all over the world. They are a growing breed of modern worker, conducting their business from pretty much anywhere with an internet connection. They often travel to exotic locations to soak up new experiences while earning an income from their laptop. Digital nomads are often freelancers, but they can also be independent contractors, or full-time employees of a company.

🎯Tips: When looking for somewhere to work and live as a nomad, there are many countries offering digital nomad visas you could apply for. Look at how long the application process is, how much the visa costs, how long it’s valid for, benefits it offers and at what the other legal and tax implications are. 

Freelancer, independent contractor vs digital nomad: What are the differences?

So now we know what the terms mean, let’s take a look at a comparison between them.

📝 Note: While there are clear differences between the three terms, sometimes people use ‘freelancer’ or ‘independent contractor’ interchangeably. This also has implications for tax and legal matters, so it’s important to check you’re following the rules in your place of residence.

Everyone likes details right? Let’s get into the nitty-gritty.

Remote work

The COVID pandemic introduced remote work to most of our lives - and now remote work opportunities are in high demand. So which route gets you that sweet, sweet remote gig? 

Digital nomads are remote by definition, many of them literally working on remote desert islands. Freelance work is highly likely to be remote, although in some rare cases freelancers might need to work from a client’s office. Independent contractors meanwhile are often working remotely these days, but a fair proportion of these contracts require working from a client’s office.

Self-employed

Freelancers and independent contractors are essentially self-employed. The rules for self-employment differ country to country, so you do need to do your research to make sure you are correctly registered. Digital nomads meanwhile can be freelancers, or independent contractors, or even employed full-time as a staff member at companies that are cool enough to allow that kind of thing.

Number of clients

Independent contractors work for one client at a time, usually on a project-by-project basis, for an extended period of time. Freelancers on the other hand often need to have a handful of clients on the go to make enough money. This is dependent on their industry, skill level, experience, and income requirements. For nomads, once again, it depends on their employment status.

Work schedule

Freelancers can usually dictate their own work schedule, which can be a blessing or a curse, depending on their ability to stay organized. After all, the client will still expect the work to be delivered on time. While contractors do sometimes have flexible work schedules, they are more likely to be required to work specific hours or according to a client’s schedule. Digital nomads usually have a flexible work schedule regardless of their employment status - but there’s always circumstances where this isn’t the case.

Benefits and taxes

As freelancers and independent contractors are both essentially self-employed, they are responsible for their own benefits, and usually for paying their own taxes. Because of this, they usually charge a higher rate to clients than an employee doing the same job would typically expect to see. That’s because the self-employed need to take care of topping up their own pension, paying for health insurance if that’s relevant where they live, and paying for things like social security and holidays. 

In the majority of cases freelancers and independent contractors also pay their own taxes, which on top of income tax can also include things like fees required for being self-employed in certain countries (looking at you Spain). Whether you’re freelance or an independent contractor, it’s important you do the research to find out the taxes you need to pay in the country you’re based in.

For digital nomads the system can be more complicated by the fact they are moving from place to place. Whether self-employed or employed by a company, nomads will need to make sure they are following the residency rules of the countries they are based in. Some countries now offer digital nomad visas which can offer tax benefits. Check 'em out here.

Business expenses

For freelancers and independent contractors, there is often the option to knock a bit off your tax bill by claiming business expenses. In the UK for example, self-employed people can claim against their tax bill for things like home office supplies and equipment, transport, legal and professional costs, and even any clothing specifically required for work.

As digital nomads are often traveling more for pleasure than for work, this may not apply to them as often.

Do you need to register a company? 

In most jurisdictions, you do not need to register a company whether you’re a freelancer or an independent contractor (or a nomad). But you may want to. For many self-employed workers, the process requires registering as self-employed, so the tax man knows to expect your self-employed tax return at the appropriate time. It varies from country to country, but in many cases it can make sense to set up a company for yourself if you earn above a certain threshold. 

Income potential

As a freelancer, the amount you can earn is limited only by your place in the market and how much work you want to do. If you’re in the top 1% of your industry, and it’s a lucrative one, then you’re going to be making great money. On the flipside, if you’re just starting out, and you don’t yet have the contacts, portfolio, or demonstrable experience to command higher fees, it could take time to build up a steady income. 

Independent contractors tend to have established experience in their industry, as their client is taking more of a risk by hiring them on the longer term contract. These contracts can be highly lucrative, depending as ever on the industry and skill level of the contractor. It would be unusual for an independent contractor to be offered a particularly low rate of pay, whereas this can be the case for freelancers. 

For digital nomads, life on the road may limit their income potential, due to them potentially having less face time with their bosses or clients. In the age of Zoom calls and remote work though, this may not be the hindrance it once was.

Job security

One of the big tradeoffs for the freedom of freelancing is reduced job security. Because they are usually employed on a short term project or contract basis, freelancers need to keep looking ahead to see where the next client and paycheck is coming from. 

Independent contractors on the other hand tend to have a bit more security. The contracts are longer term, and usually pretty well paid, so even if there’s a bit of time in between contracts, contractors can usually rely on a bit of a financial safety cushion. For digital nomads, this depends on their employment status - but again, reduced face time with bosses and clients could be a factor to consider.

How to decide which one to become 

There’s no one-size-fits all answer to this: ultimately, it depends on your personal goals, skills, experience, and preferences. To decide which option is right for you, consider your desired lifestyle, work-life balance, and financial goals. Assess your skills and experience to determine which type of work you are best suited for. Research the market demand and earning potential for each option, and factor in the costs of self-employment taxes and benefits.

Freelancing offers the most flexibility in terms of the number of clients and projects you can take on, as well as your work schedule. If you want more job security and to spend less time drumming up new work, becoming an independent contractor may be the better choice.

As for becoming a digital nomad, as we’ve seen you can do this as a freelancer, contractor, or as an employee - but only if circumstances allow. You’ll need to find the opportunities that grant you the freedom to work from wherever you want.

Get your career as a freelancer, contractor or digital nomad going with Xolo Go

Whether you choose to be a freelancer, independent contractor, or are taking up the digital nomad lifestyle, you’re going to have to deal with the tricky business administration side of things. That means being VAT compliant, issuing the correct invoices, and potentially receiving income in different currencies. 

That’s where tools like Xolo Go come in. There are already 120,000 Xolopreneurs invoicing more than 500,000 clients using Xolo Go, and it couldn’t be easier to get started.

What you get with Xolo Go:

• A business bank account (IBAN)
• An instant invoice generator with an automated VAT calculator
• A real-time business dashboard to keep an eye over your expenses and income
• Plus, you only pay for Xolo Go when you get paid

It’s the perfect solution for solopreneurs (or as we like to call them, Xolopreneurs) who are looking for a no-strings-attached way to invoice clients, and for digital nomads looking for a remote-friendly invoicing solution.

With the right tools in place, you can embrace your journey as a freelancer, contractor, or digital nomad, safe in the knowledge that your invoicing and business administration is under control. Back to work!

About Andy

Andy is a seasoned digital nomad and content writer. He has been running a fully remote digital marketing agency and traveling the world for the last 10 years. Andy shares his advice and insights on digital nomads and the future of work on his blog, Andy Sto.

1. What are the main differences between a freelancer, an independent contractor, and a digital nomad?

Freelancer:

• Definition: Typically self-employed individuals offering services to multiple clients, often on a project basis.
• Work Environment: Usually works remotely, often from home or co-working spaces.
• Client Base: Can work with multiple clients simultaneously.
• Flexibility: High, with the ability to choose projects and set their schedules.

Independent Contractor:

• Definition: Specialists hired by companies for specific projects or time periods.
• Work Environment: May work on-site or remotely, depending on the contract.
• Client Base: Often works with one client at a time, typically on longer-term contracts.
• Flexibility: Moderate, with some flexibility in choosing contracts but less in setting work hours.

Digital Nomad:

• Definition: Individuals who work remotely while traveling to various locations.
• Work Environment: Fully remote, often from various global locations.
• Client Base: Can be freelancers, independent contractors, or even employees.
• Flexibility: Very high, with the freedom to choose work locations and often schedules.

2. How do taxes and benefits differ for freelancers, independent contractors, and digital nomads?

Freelancers:

• Taxes: Responsible for self-employment taxes, including income tax, social security, and Medicare.
• Benefits: Must provide their benefits, such as health insurance and retirement savings.

Independent Contractors:

• Taxes: Similar to freelancers, they must handle their self-employment taxes.
• Benefits: Responsible for their benefits but may have longer contracts providing more income stability.

Digital Nomads:

• Taxes: Complex, as they may need to comply with tax laws in multiple countries. Digital nomad visas can offer tax benefits in some countries.
• Benefits: Must manage their benefits, with additional consideration for international healthcare and insurance.

3. What are the pros and cons of being a digital nomad compared to a freelancer or independent contractor?

Pros of Being a Digital Nomad:

• Travel Opportunities: Ability to explore new places while working.
• Flexible Lifestyle: High degree of freedom in choosing where to live and work.
• Diverse Experiences: Exposure to different cultures and environments.

Cons of Being a Digital Nomad:

• Tax Complexity: Navigating tax obligations in multiple countries can be challenging.
• Unstable Internet: Dependence on reliable internet connections can be a drawback in remote areas.
• Isolation: Frequent travel can lead to feelings of isolation or lack of community.

Comparison:

• Freelancers enjoy flexibility and variety in projects but may have more stable tax and benefit management.
• Independent Contractors often have longer-term contracts, providing more stability but less flexibility in travel and schedule.