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When does your freelancer become your employee?

When does your freelancer become your employee?

You may have hired a freelancer who was happy to call themselves self-employed at the start of the arrangement. Agreeing with someone that they will be “self-employed” has benefits for both the employer and the individual. There is a perceived flexibility in the arrangement, the individual doesn’t receive holiday pay, sick pay or a pension, and of course, there is no employers’ national insurance to be paid. However, employment status is quite complex and it is not simply a matter of the employer and the freelancer deciding that they will be “self-employed”.

Often problems arise when you decide that you no longer want to use the freelancer’s services. You believe that they are self-employed and so it should be easy to end the arrangement. However, at this point your self-employed freelancer may decide that they have been an employee all along. Now they want you to pay them notice pay, redundancy pay, backdated holiday pay, or sue you for unfair dismissal!

The financial risks of getting this wrong are high. As of April 2021, the maximum compensatory award for unfair dismissal is £89,493 and redundancy payments can amount to £16,320. 

Our HR advice services can help support you through any freelancer issues and prevent problems from arising further down the line.

It’s important to be clear about which factors make someone employed or self-employed before you engage them to work for you. Getting the relationship clear at the beginning will prevent expensive problems later. There are many criteria to consider, but generally speaking a self-employed freelancer will meet most of those listed below:

  • No mutuality of obligation – this means that the self-employed are not guaranteed any work and do not need to accept any work you offer them. An employee is guaranteed a set number of hours per week and must come to work as agreed in their contract.
  • Right of substitution – a self-employed individual can send along another person to carry out their work. An employee cannot.
  • Control – self-employed individuals can control when, where and how they carry out the work whereas an employee is provided with hours of work and is told what to do. Employees are subject to the company’s procedures and policies and may manage others.
  • Financial risk - self-employed staff are often paid by the job or project and they can make a profit if they complete the job quickly, or lose money if the project overruns or has to be reworked. They will have their own insurance to protect themselves from errors or accidents. Employees are usually paid by the hour, day or year and are insured by the employer.
  • Equipment – self-employed individuals often provide their own space, equipment or tools. Employees are provided with these by the employer.
  • Working for other clients – it is expected that self-employed freelancers will work with different clients or perhaps be engaged for short term projects. Your freelancer may become an employee if they have worked regular hours for you over a period of time. After two years they will gain full employment rights such as the right to claim unfair dismissal.

How to prevent disputes

  • Exploring these issues with your freelancer before they start working for you will clarify their employment status and prevent problems later. If you both believe that they can be legally defined as self-employed, ensure that they understand the following:
  • they need to register with HMRC as self-employed and pay their own tax and national insurance.
  • they are not an employee and therefore will not have certain employment rights such as payment for sickness, holiday, pension, and maternity provisions.
  • the arrangement is not permanent and can be ended at any time (subject to whatever is specified in their contract).

It makes sense to draw up an agreement between you both; outlining the nature of your working relationship. Our HR advice team can support you in doing this.

How can we help?

We have experience of providing HR advice and support for all aspects of employing and managing staff. We can take away the hassle of staffing issues giving you valuable time back to focus on your core business. Our HR advice services can support you with current issues, but we can also work with you to prevent problems arising, thereby saving you both time and money.

We are happy to discuss any freelancer arrangements that you have in place to help ensure that you are protected from claims and fines.

Please contact Sean Lovett, Lead HR Advisor to find out more.

 


First Published 14 September 2021
Last Updated 14 September 2021

 

Find out more about Sean Lovett

Sean Lovett

Sean Lovett

Sean is our Lead HR Advisor in our HR team

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