Hiring a freelancer or contractor is a great way to get that extra resource your business needs without having to take on an employee. However, there are a few areas you need to be aware of in order to protect your business:
- What’s the difference between a freelancer and a contractor?
Self-employed, freelancers work from their own premises and usually work on numerous projects at the same time. From a tax perspective, a freelancer would fall into the self-employed bracket so the onus lies with them to register with HMRC and complete a self-assessment tax return each year.
From a tax perspective, there is no difference between freelancers and contractors. The latter are also self-employed and are required to complete self-assessment tax returns (and have to sort out their own NI contributions). However, from an employment status, contractors are usually only required for an allocated amount of time or on a temporary project.
- Employment status
Before engaging a freelancer it’s important to be aware of their employment status, particularly with IR35 rules coming into play from 2020. If your contractor or freelancer could be seen as an employee by HMRC then your business could be fined heavily. See the table below to work out whether an individual is self-employed or employed:
|Is the worker contracted to provide the work personally?||Yes||No. Can send along a substitute if unable or unwilling to do the work personally.|
|Does the worker work exclusively for the other party?||Yes||No. Can do work under two or more contracts with different parties at the same time.|
|Does the worker work as part of the other’s business?||Yes, an integral part of their employer’s business, working within the core of the business.||No. Works as and when required.|
|Does the worker provide their own equipment?||Employer provides all tools, machinery and equipment required.||Most often provides own tools and equipment.|
|Does the worker provide their own support staff?||Employer provides all required support staff.||Provides own support staff as required and pays them directly at own expense.|
|Is the worker responsible for own profit and loss?||Not able to increase profits over and above wage received.||Ability to enhance profit by maximising efficiency. Puts errors right at own cost.|
|Tax, NI and VAT arrangements.||All dealt with by employer. Subject to PAYE rules.||Produces own accounts and paid on invoice.|
|Is the arrangement designed purely to achieve tax advantages and/or to avoid employment legislation?||If yes, it is likely to fail and the worker will be regarded as an employee.|
|Does the worker receive paid holidays, sick pay and/or a company pension scheme and do they receive regular wages?||Yes (note: workers are also entitled to receive paid annual leave).||No.|
|Is the worker subject to disciplinary action in the event of misconduct or poor work performance?||Yes.||No.|
- Rates of pay
Rates of pay can vary vastly for freelancers and contractors depending on industry and seniority. Before engaging with either it is a good idea to do a benchmarking exercise and work out average day / hourly rates for your sector and role. You can do this on a budget by searching for salary surveys and job boards. Read our guide on establishing salaries for more detailed information.
- How to find a freelancer
LinkedIn is a great place to start when searching for additional resource, either by searching manually in your sector or by posting out to your network and in relevant groups. There are also specialist freelance sites where you can source professionals for your project, like PeopleperHour or Fiverr.