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Freelance vs. Contract Workers: What’s the Difference?

Feb 1, 2019

Any small business owner will know that your staffing and employee needs can change over time depending on how many projects you have in flight, whether you are growing or entering a new sector for example.

With a number of options available when it comes to employing staff it is important to understand the way that will work best for you business and current needs. As a small business you also need to understand that employing staff (and the way in which you do this) can have implications from a taxation perspective as well as potential impacts on your small business insurance and the type of insurance you may need.

What is a Freelancer?

A freelancer is an individual who is self-employed rather than working for one business. Freelancers can work in several different ways but will more often than not:

– work on a number of different projects for a number of different businesses at any one time
– work from home rather than in the offices of a business

The benefits of a Freelancer to a business are flexibility – Freelancers can be employed to complete big or small projects, on a long or short-term basis. As Freelancers are self-employed, when it comes to tax they are responsible for registering themselves with HMRC to ensure they report their earnings and pay the right amount of tax.

As an employer the process of finding a freelancer is relatively straightforward. Post a job or project on a freelancing website for example and then once applications come in decide who has the best skills and experience to meet your needs.

What is a contractor?

A contractor again isn’t someone employed by a business. In many instances, a contractor is an individual who sets up their own limited company (effectively their own small business) and then they provide specialist services through that company.

Whilst similar to a Freelancer, there are subtle differences. Contractors tend to

– Work on one project at a time
– Often work for only one client, full time for a number of months
– Work from their client’s offices

Again, because contractors are self-employed, they will need to complete a self-assessment tax return rather than being paid via a PAYE scheme.

What impact can employing freelancers or contractors have on your business?

It’s important to employ people in the right way and the way that works best for your business, but it is very important that you classify employees in the correct way. This is because of IR35 legislation (also referred to as off-pay roll working). Read more about this on the gov.uk website here.

IR35 legislation essentially looks to ensure that those self-employed as freelancers or contract workers pay a similar level of tax as those employed by a business. Equally from the businesses perspective it ensures that people aren’t being employed falsely on a freelance/contractor basis so that the business doesn’t pay employers’ National Insurance contributions or costs associated with employment benefits.

It is also important to make sure you have the right business insurance solutions in place to protect your business. Having your own insurance policies in place is essential however you employ staff. Whilst it won’t negate the need for your business to have insurance, Freelancers and contractors will usually have their own insurance in place as well given that they are self-employed and it may be worth checking they have cover in place before you work with them. This can include:

– Professional Indemnity Insurance
– Public Liability Insurance

Employers liability insurance is also a legal requirement for those employing people. Remember that this is also the case for those employing staff on a contract, temporary or short-term basis so when you are thinking of taking on people to do work for you this must be a consideration for your business insurance.

If you have any questions about your business insurance, the types of cover you should have in place or how employing staff in different ways may impact the insurance you already have in place then don’t hesitate to get in touch with us on 020 8290 9080 or email business@anthonyjones.com.

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