Freelancer or Employee? Here’s Why Your Company Needs to Know the Difference

Across the UK, more and more people are choosing to become self-employed. You may have read a lot about the gig economy and companies choosing to use freelancers on short-term employment contracts. There are advantages and disadvantages on both sides. It can be a handy solution for companies who have peak times and only need casual staff. But, with companies such as Uber in the spotlight, it’s important that companies stay on the right side of HMRC. Using payroll software is one way to keep track of your payments for both permanent and temporary staff. However, it’s important to know how to define people who work for you.

What is a freelancer?

When you hear the word freelancer, you may think of creative types. But freelancers can do a wide range of jobs, from unskilled to professional services. Most freelancers charge an hourly or daily rate which can often be run through your payroll software. Your freelancers will raise a monthly invoice for which you pay the gross amount. Freelancers will usually:

  • Pay their own tax and NI
  • Have more than one client
  • Bill monthly, or at agreed intervals
  • Work on specific projects, although their roles can vary

This means freelance work is often short-term and set at peak, busy times such as when a project is being undertaken or a new product is being launched. However, with the rise of apps such as Uber, the definition of freelancing has been stretched, which could account for the rise in people defining themselves as self-employed.

Should my freelancers be classed as employed?

If you’re concerned that your freelancers should actually be employed by your company, then it’s important to clarify their position. This is because the HMRC is cracking down on firms who illegally make people work as ‘contractors’ or use other terms that mean they avoid paying sick pay, maternity leave, or pension benefits. If someone is working as an employee, they need to be added to your systems to ensure payroll processing for bureaus is properly carried out. Generally, there are three main factors that would class someone as an employee:

  • Flexibility – employees generally have to work set hours and in a set location
  • Obligation – freelancers aren’t obliged to carry out work you offer. You aren’t obliged to provide work either, unless either of you have signed a contract
  • Substitution – with an employee, the contract is with that person alone, while freelancers can often opt to substitute someone else in their place

If you have hired someone for a long period and have expected them to work certain hours, to work for you exclusively, and to be the only one to carry out the work, then you may well be classed as an employer, so will need to ensure you meet your legal obligations.

For software that makes payroll so much easier, contact Primo Payroll on 0845 456 7181 or contact us online for more information about our products.