Contractor or Freelancer vs Employee: What’s Best For Your Software Project?

You’re ready to develop your next great product, and you want the best of the best working on your project. Fortunately for your business, you’ve got options.

Instead of saddling yourself with only your local talent marketplace, you can choose from workers across the globe to create your next amazing product. But not all talent is created equally: You have to know the difference between a contractor or freelancer vs employee.

Freelancers, employees, and independent contractors can do similar work for your project, but your costs, time, and other factors will differ depending on who you hire. Learn the difference between freelancers, full-time employees, and independent contractors to decide which option would make the most sense for your software development project.

Option 1: Freelancers

There are currently 56.7 million freelancers in the US alone and, as of 2018, 32.6 million in the EU — these are figures that have increased in recent years. Thanks to technology, freelancers can work from anywhere, on their own time. They set their own hours, choose their clients, and operate as an independent business.


Freelancers are perfectly suited for short-term, one-off projects. Because they can work from anywhere, you’re free to widen your search, choosing from the most competitive freelancers in the world. If you’re unable to find local talent for your development project, freelancers are a great choice.

Another benefit of going the freelancer vs employee route is costs. On average, freelancers are up to 30% less expensive than employees. There’s no need to pay for training, supplies, or benefits—simply tap into the freelancer’s expertise to hit the ground running.


The biggest difference between a freelancer vs employee is control. Because freelancers are totally independent from your business, they have control over:

  • Their workload
  • Their hours and availability
  • What projects they will and won’t accept

Working with a freelancer is like negotiating with an independent business, which means you have less control than you would if you hired an employee.

The other issue with freelancers is that they aren’t concentrating 100% on your business. Because freelancers maintain a revolving door of clients for short-term projects, they’re never giving your software development project all of their undivided attention, which can lead to errors.

Option 2: Full-time employees

Your second option is more traditional: hiring a full-time employee. Full-time employees work at your business during standard hours, acting as a representative and an extension of the company.


If you’re considering hiring a freelancer vs. an employee, consider the fact that employees are in it for the long haul. While freelancers are around for one-off needs, employees are a long-term commitment. They get to know your business and, over time, bring a lot of institutional knowledge that’s beneficial for developing new software products.

Employees are a good option if you want a greater degree of control. You set their hours, performance standards, tasks, and compensation. Compared to freelancers and independent contractors, full-time employees are the best option for more complex, long-term projects.


The biggest downside to hiring a full-time employee rather than a freelancer or contractor is the costs. As an employer, you’re expected to pay for things like:

  • Taxes
  • Retirement
  • Paid time off
  • Worker’s compensation
  • Unemployment
  • Health insurance

These expenses add up quickly, and they’re often the reason why companies outsource their development to a contractor or freelancer vs an employee.

Another downside to hiring an employee is the need to untangle your internal processes. You need a plan for training, feedback, tools, and more—all of which require time and money to improve. In fact, the burden of management might require hiring a project manager for your developer, which means that hiring “just one” developer is rarely just one developer.

Option 3: Independent contractors

But you don’t have to choose between just freelancers or employees. You have a hybrid third option: hiring an independent contractor.

While this sounds identical to hiring a freelancer, independent contractors are different. They include your vendors like lawyers and accountants, as well as your temporary contract employees. For example, if you hire an on-site developer for six months because they’re fluent in an obscure programming language, they would be an independent contractor, not a freelancer.


Independent contractors are perfectly suited for bigger, long-term projects that don’t necessarily require a full-time employee. If you want a long-term relationship without paying for benefits, independent contractors are a better bet than freelancers.

Contractors have an advantage over freelancers because they tend to do one project at a time. You don’t have to worry about your contractor splitting their attention between your project and other clients, which can lead to better results.

Independent contractors are also working under a contract, which gives you more predictability. You may be paying their salary for a set number of months, but because this is a temporary contract, you know that cost will go away eventually, unlike the costs associated with hiring full-time employees.


The biggest challenge with independent contractors is staying compliant. Tax authorities usually have very clear rules about whether someone is a freelancer, contractor, or full-time employee. Harsh penalties await you if you classify a full-time employee as a contractor, so always vet your contracts through your local tax authority’s checklist.

Software development without the headaches

Hiring a contractor or freelancer vs an employee can get messy. The right option for your software development project comes down to your budget, work style, and the nature of the project. Unfortunately, each option comes with its downsides.

Instead of paying exorbitant costs for full-time employees or trying to get better-quality work out of a freelancer, go with a Digital Product Agency like VeryCreatives. We take the time to understand your business so we can hit the ground running, accomplishing more work than one freelancer, employee, or contractor could ever do.

See the difference for yourself. Schedule a free consultation with VeryCreatives now to brainstorm your next move.

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Máté Várkonyi

Máté Várkonyi

Co-founder of VeryCreatives



Digital Product Agency

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