Rates vs. wages

One thing that comes up often in the oDesk Community Forums is the topic of rates.  More specifically, people assuming that what they are being paid is a wage, therefore demanding a minimum to be set.

What a lot of people new to freelancing aren't aware of is that they are not paid a wage, rather a contract rate.  Whether the rate is hourly or fixed-price, it is one that all independent contractors set themselves.

Employees and wages

Wages are paid to employees of a company.  When you are an employee, you receive a W-2 (in the US), and your employer withholds taxes and are required by law to offer certain benefits to full-time employees.  The employer is responsible for your work environment, safety, equipment, and training (if necessary).

Independent contractors and rates

Independent contractors, on the other hand, are responsible for their own environment, safety, equipment, and training.  Companies do not employ independent contractors, they contract out to them so they do not have to pay for benefits.  The contractor sets the rate, while the company decides whether or not the cost vs. the service provided is worth their money.

Here is what the IRS has to say about independent contractors:

The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies that she obtained through advertisements. Vera is an independent contractor. [source]

What does that mean?

If you're using oDesk (or many of the other job boards), you sign an agreement when you create an account that says you are, for all intents and purposes, an independent contractor.  You are not an employee of oDesk, nor are you an employee of the buyers that hire you – therefore, you are not entitled to benefits such as a minimum wage.

This is why it is extremely important to work on your profile and cover letters.

In freelancing, you have the potential to make much more than you would as a normal employee bound by employment laws…but you'll only get as far as your proposals get you.