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What You Need to Know when Hiring a Freelancer or Contractor

23/1/2015

10 Comments

 
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With the growing popularity in flexible working conditions, an increasing number of employees are trading in the corporate hierarchy for the freedom to be their own boss. These independents can be found in nearly every profession, from lawyers and business consultants to writers and web designers. Although freelancers/contractors may set their own agenda, they also pay their own tax, which makes business much easier for companies who avail of their services.

It's clear how a freelance or contract-based arrangement can benefit small businesses with a limited budget and lack of human resources department, but depending on the specific terms of your arrangement — hours worked, reporting structure, payment schedule, etc. — you may be in violation of some very serious employment classification laws. It is crucial that a company engaging a freelancer/contractor is mindful of how to differentiate a freelancer from an employee and has clear policies in place.

Generally,

  • A contract of service between two parties indicates a contract of employment subsists.
  • A contract for service suggests a self-employed status of the service provider.

The key issue of differentiation comes down to tax. Revenue will want to ensure that correct payments are being recorded. A contract of service obliges the employer to operate PAYE as the employee is taxable and therefore the employer carries all the associated tax responsibilities, whereas under a contract for service, the freelancer/contractor is liable to declare tax under the self-assessment system. A freelancer/contractor generally also claims more expenses against potential tax liability which will be scrutinised by Revenue.

Another factor that employers need to consider when differentiating between freelancer/contractor and employee is that if a freelancer/contractor is not considered genuinely self-employed but actually is, to all intents and purposes, an employee, they will have a number of legal constitutional rights, whether it is protection from dismissal, maternity rights, minimum wage rights and more.

There are six main aspects to take into account to ensure your hired freelancer/contractor is not seen as an employee:

Control: Control is based on how much flexibility the individual has with regard to working hours, overall movement and the level of personal responsibility in carrying out the work in question. Individuals who work when and where they want to are considered to be independent freelancers/contractors. If, on the contrary, you require someone to be in the office for a fixed period of time and work according to company policies, that person should be classified as an employee.

Obligation: In a freelance relationship, a freelancer/contractor must feel no responsibility to undertake work and the company mustn’t feel obliged to provide any work. This may seem impracticable but it keeps the relationship at arm’s length, leading to a more interdependent working agreement and less likely to be seen as a full-employment relationship.

Substitution: Legally, an employee cannot substitute themselves with another person, however with freelancing, there is greater flexibility. Freelance contracts should maintain the right for the freelancer/contractor to provide a substitute if they are unavailable.

Equipment and Software: Independent workers should use their own tools or materials to complete a job, whether it is their own laptop and mobile or machinery. Many freelancers/contractors tend to avail of the company premises and stationary if need be, however it is important to ensure they do not have a designated desk or are given a company phone to use during the project.

Training: Businesses shouldn't have to train independent freelancers/contractors, as they ideally should be able to begin projects immediately, producing work that they've been hired for. If a worker requires substantial training to complete a job, they may be considered an employee.

Exclusivity: Freelancers/contractors are self-employed business owners. Generally, they have their own business cards, website and will their services to other companies. Someone who exclusively works for your company puts them closer to employee status.

It is recommended that businesses, most importantly those without a designated HR department, assess a worker's terms of service. Even if a misclassification is an unintentional error, it could cause your business a huge financial and legal headache with fines, penalties, back taxes, additional compensation owed for overtime, etc. being issued.


The contents of this article are necessarily expressed in broad terms and limited to general information rather than detailed analyses or legal advice. Specialist professional advice should always be obtained to address legal and other issues arising in specific contexts.

10 Comments
Fernando Baroni link
1/6/2017 10:19:21 am

Hi, I want to know if I can have help from laws/lawyers if I did a freelance for someone (that used to be a "friend") without a contract (graphic design job - Logos, labels, consulting and alterations).The only proof I have are the files I did + the emails about alterations.

Reply
Alisha Daniel link
13/11/2017 04:59:41 am

Now-a-days we prefer freelance contractors to perform all manner of jobs for our businesses. To help you get the best possible results when hiring your next freelance contractor, go through the basic points define in the blog. Here, you blog clearly describes the information that will definitely helpful for the viewers who have planned for hiring a freelance contractor for your home. Hiring a freelance contractor is a great way to save time, money, and connect with a talented digital specialist to get your job done.

Reply
Jimmy link
5/9/2018 02:07:42 pm

can u deal with a scandal / abuse or fraud costing cattle farmers and tax payers in g b and ireland millions upon millions annually for something that is totally wrong but at the same time it is compulsory which is cattle tb testing by vets and defra

Reply
FactorLoads link
19/9/2018 05:46:17 pm

My business is now growing that is why I am looking forward on hiring a a freelancer who can help me with some of the tasks. Thanks for sharing information about what to consider when hiring freelancers. This article is very helpful.

Reply
Business Working Capital link
6/11/2018 03:37:57 pm

Thanks for sharing this article. I also believe that hiring a freelancers is really great especially to small businesses. I also think that it is good to be a freelancer because you can have your own flexible time to work and earn money.

Reply
Nova Cash Flow Finance link
6/12/2018 04:42:43 pm

I am also planning to hire a freelancer for my business because I know I can save money with it. I will follow all the things that you said here. Thanks for sharing this.

Reply
Factoring Finance link
28/4/2019 04:31:58 pm

Yes, I totally agree with what you said. I think that hiring a freelancer will definitely help a lot of business especially those who are new to business owners. I also believe that hiring a freelancer will surely help save money and time for the business owner. Thanks for sharing this article.

Reply
Nova Business link
10/6/2019 11:57:38 pm

I also think that we can definitely achieve more work or projects if we hire a freelancer. We can definitely save time and money as well. Thanks for sharing this article. This is great and very helpful too.

Reply
Day2DayBlogs link
27/5/2020 02:15:45 am


Thank you so much for sharing this amazing information
<a href="https://www.day2dayblog.online/post/do-you-want-to-be-self-employed-then-you-need-to-know-about-freelancers">Do you want to be self-employed? Then you need to know about freelancer</a>

Reply
Day2DayBlogs link
27/5/2020 02:17:12 am


Thank you so much for sharing this amazing information
<a href="https://www.day2dayblog.online/post/do-you-want-to-be-self-employed-then-you-need-to-know-about-freelancers">Do you want to be self-employed? Then you need to know about freelancer</a>

Reply



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