Small businesses in the UK are increasing their use of freelancers – at least that’s according to new research.
According to a small business survey by PeoplePerHour.com, 33% of the 1300 businesses surveyed are currently hiring freelancers on a weekly basis, with a full 41% planning to increase the use of freelancers in the next year.
And bear in mind last year’s bold prediction by Gene Zaino, the CEO of MBO Partners, who reckons that, according to his firm’s research, by 2020 there will be more independent workers in the United States than paid employees!
Using freelancers and consultants – the benefits
The benefits of using a freelance worker instead of a paid employee are considerable. Flexibility is a particular advantage – in particular the ability to complete individual projects without adding to the permanent wage bill. What’s more, freelancers don’t get sick or holiday pay, paid pension contributions or any employer responsibility for national insurance. And the on costs for using them are often dramatically lower – for example, they may not need to take up space at your office or factory – working from their own home or other premises.
So far, so good – what’s not to like!
If an employment tribunal or HMRC, when considering someone’s employment status, conclude that the worker is an employee, not only could you be lumbered with an additional employee, you could be vulnerable to an Employment Tribunal claim, and you could make yourself liable to up to 6 years back tax! The risk is very real. Back in 2012, Weight Watchers were hit with a bill for tax and National Insurance Contributions going back over six years, which was reported at a staggering £23 million.
Unfortunately, there’s no single test which guarantees someone is genuinely self-employed. Instead, there are several factors which the Employment Tribunal, or HMRC, will take into account when considering someone’s employment status. Get this wrong and you could find yourself with an additional employee and a tax liability going back up to six years.
Employee or consultant – what to look for?
Amongst the list of factors which are taken into account when deciding whether your worker is an employee or self employed consultant/freelancer, are the following;
o The stated intention – the first thing to look at is any contract of employment or other agreement for services. Does that agreement effectively describe a contract for services or a contract of employment?
o Your conduct – is the nature of the way the worker is actually treated consistent with their job description. Just calling someone a freelancer or a consultant does not make them one. It is your conduct towards them and how you treat them that counts
o Delegation – can the worker delegate their responsibilities to someone of their own choosing? In particular, what happens when the consultant is sick, and is there any provision for holiday pay ?
o Is the work ongoing or is it carried out just periodically?
o Use of the employers equipment and tools – in general, a self-employed worker provides their own kit for the job
o Control – how much control can you exercise over how the consultant carries out their tasks?
o Does your consultant work for anyone else? Do they advertise or promote their services elsewhere?
o Termination of the agreement – whatever you do, don’t use the term ‘dismissal’ in any contract – as this employs the worker is an employee under a contract of employment
o Training – are you going to train the consultant, or pay for the cost of any training in a way that is suggestive of employment status?
o How is the employee paid? In particular, is payment to them automatically included in a monthly wage run with other staff or is the employee paid on submission of an invoice?
o Has your industry been accepted traditionally by HM Customs & Revenue as work done by the self-employed?
This list is not comprehensive but it might give you an indication of whether or not you should have concerns over the status of your consultant.
Beware of gradual integration as an employee
Lastly, there’s one other thing to watch. Although a worker may properly be treated as a freelancer or consultant initially, you must watch out for the situation where that freelance contract gradually, and almost imperceptibly, turns into an employment contract. It’s easily done – and amongst the things to watch out for are including any consultant in standard start appraisal systems, transferring them to a new job and applying the firm’s standard disciplinary procedures to them.
Don’t take risks – call our employment solicitors
Finally, as with any other issue of employment law, don’t take chances. Make sure that every employee has a properly drafted contract of employment, and if in doubt, why not call one of our experienced employment law solicitors on Salisbury 422300 or Andover  364433 – initial phone advice is always free and could save you a small fortune.