28/11/2014

By Annabel Kaye, Managing Director, Irenicon


There’s a lot to be said for using freelancers and contractors. You don’t have to pay them when there isn’t any work and you can often get away with not paying them until you get paid. Paying freelancers is a bit like the old Wild West – no rules, no lawmen and a regulation free zone…or is it?

Did you know that freelancers have rights?

Freelancers who do the work themselves can be classed as ‘workers’. This does not make them employees, but it does give them a full set of workers’ right – including discrimination/equality, statutory holiday and minimum wage.

Just because they invoice you does not make them self employed

Telling your staff they are now self- employed and getting them to invoice you does not make them genuinely in business for themselves. HMRC will look at how the relationship is conducted – not the label you put on it. If it looks like employment, and is worked like employment, then that is how HMRC are going to see it – with claims for back PAYE, back tax, and penalties if the correct deductions for employment were not made at the time of payment and passed on to HMRC.

Payroll companies avoid all the issues?

You can’t avoid all the problems by only using individuals with a personal payroll company – but you can avoid some of them.

According to our survey, about half the freelancers supplying services are doing so through a personal payroll company. However, even if the tax issue is sorted out (and this is not obvious as HMRC are very keen to get freelancers into PAYE) there are other things to consider. Do you know that without the right paperwork:
• your freelancer owns the copyright in all they produce for you?
• there is nothing to stop your freelancer approaching your clients directly?

On top of that, you need to make sure you are complying with the Data Protection Act 2014 (even just a name and an email address is ‘personal data’ and so covered by data protection rules).

And there is always the tricky business of getting them to do what you are paying for to the required standard (and on time).

A good written agreement between you and your freelancers will pay for itself many times over – particularly if it is appropriate to your business.

Buying through a third party web site?

Technology allows even the tinest business to buy services from anywhere in the world. But we don’t all have the resources to quality-control this, or the money to enforce our contractual rights when things go wrong.

If you read the small print on the freelance buying web sites, you will see that the terms are there to protect them from you. They don’t want you suing them if things go wrong. While some do allow you to pay only when you are happy – you can be happy with the work and still have none of the contractual or legal rights you need later on.

If you go to sell your business, and you don’t have copyright in your logo, or your database has been leaked to spammers and scammers, you will soon see that you don’t have what you thought you paid for – but your money will have been given to the freelancers years ago.

You need a strategy about when you use freelancers, how you use freelancers, and where they need to be that balances the cost implications against the risks of losing all your data or IP or copyright in a part of the world where you cannot realistically afford to do much about it.

REAL agreement?

In an ideal world we would not have problems with freelancers – they’d just do what we ask, and do it on time and on budget. In the real world things don’t always work that way. We need to build structures, contracts and great relationships that allow us to manage our virtual and project teams in a way that is appropriate for our business. That takes an agreement that is:
Realistic – reflecting what is really going on
Ends well – ensuring you know who owns what at the end
Appropriate – it may be that some people need to be in the UK, or even just round the corner
Legal – and not setting you up for legal problems later

Wrap those concepts around a great way of managing your teams and you have a freelance business model that is robust and will allow you to build a manageable business.

If you’d like a copy of our Freelance Top Tips click here


Annabel Kaye is Managing Director of Irenicon – their KoffeeKlatch service helps business contract and manage the freelancers they pay.
Tel: 08452 303050