As companies expand globally and professionals seek more flexible working arrangements, the traditional workforce has evolved. Today, teams are often a mix of full-time employees and self-employed independent contractors (often called freelancers).
While these terms are sometimes used interchangeably in casual conversation, they represent very different legal, financial, and tax relationships. Understanding the distinction is critical—whether you are a professional figuring out how to bill for your services, or a business trying to avoid the heavy legal risks of worker misclassification.
Here is a breakdown of the differences between an employee and an independent contractor/freelancer.
1. The Employee
An employee is a worker hired under a formal employment contract by a company.
- Control and Autonomy: The employer dictates how, when, and where the work is done.
- Taxes and Benefits: The employer is legally responsible for withholding income tax, contributing to social security, and providing statutory benefits like paid time off, healthcare, and pension contributions.
- Global Hiring: If a company wants to hire an employee in a foreign country where they do not have a local legal entity, they typically use Employer of Record (EOR) platforms, such as Remote, Oyster, or Deel. Alternatively, businesses can partner with solutions like Iglu, which officially hires, pays, and manages international workers locally on the company’s behalf so that you don’t have to establish your own foreign subsidiaries. These platforms handle the complex local payroll, compliance, and benefits, while the employee works day-to-day for the client company. Read also about Merchant of Record.
2. The Independent Contractor and Freelancer
Legally and for tax purposes, an independent contractor and a freelancer are the exact same thing: a self-employed individual or business entity that provides services to another company under a Business-to-Business (B2B) contract.
The only real difference is in how the terms are used in the market: an “independent contractor” might work on a single, long-term contract acting almost like an external team member, whereas a “freelancer” typically juggles multiple clients and shorter-term projects simultaneously.
- Control and Autonomy: Unlike employees, contractors control how they complete their work. They are hired to deliver a specific result or project, but the client does not dictate their daily schedule or working methods.
- Taxes and Benefits: Contractors do not receive employment benefits. Crucially, the client company does not withhold taxes from their pay; the independent professional is entirely responsible for self-reporting their own local income tax and managing their own compliance.
- The Misclassification Risk: Businesses must be very careful not to treat a contractor like an employee. “Contractor misclassification” can lead to severe legal penalties and back-tax liabilities for the hiring company.
- The Invoicing Hurdle: Freelancers and contractors often operate as unregistered individuals. This creates a major friction point because corporate Accounts Payable (AP) departments usually require a registered business entity to process vendor payments safely.
How Platforms Solve the Differences
If a company wants to hire employees abroad, they pay premium monthly subscription fees (often $599+ per month) to EOR platforms like Deel or Remote to handle local employment laws and benefits.
However, if a professional wants to operate as a freelancer or independent contractor, they do not need an EOR. Instead, they need a B2B invoicing solution to bill their clients properly without the heavy costs of setting up their own local company.
This is where platforms like GloPay step in. GloPay operates strictly on a B2B model for independent professionals providing remote professional services. When a freelancer signs up, GloPay automatically forms an Estonian “contractual partnership” in the background. GloPay then invoices the business client on behalf of this partnership.
The result?
The business client gets a fully compliant B2B invoice from a registered EU entity, removing their vendor compliance headaches. The freelancer gets to work independently and receive fast, multi-currency payouts without dealing with the bureaucracy of registering their own offshore or local company. And because GloPay charges a flat 5% revenue share on paid invoices rather than a monthly per-seat subscription, it is a highly scalable solution for modern freelance work.