Contracts for freelancers - Can’t we keep it simple?

In an ever more complex world, it is not surprising that we find ourselves yearning for simplicity. Wouldn’t it be nice if we could just pay somebody what we think they are worth, as and when we need them, without worrying about contracts, PAYE, NICs, National Minimum Wage and all the other employment bureaucracy?

Many small businesses baulk at the prospect of taking on employees, thinking it is complicated and onerous, and that it is easier to hire in the services of freelance contractors. Just find a self-employed person who has the rights skills, agree a price, shake hands on the deal, and write them a cheque at the end of the project. If they are good, you can hire them again; if not, you can find somebody else. No need to get entangled in all the responsibilities of employment.... It’s much simpler using contractors, isn’t it?

Well, not necessarily. In fact there are plenty of pitfalls for the unwary business making use of freelance contractors.

• For a start, a self-employed person has to cover their own tax and NICs, and make a living, so it is quite likely that if they are any good they will actually cost you more than the equivalent employee would.
• If they are good they will be in demand, and if they have a more lucrative project on the go, you may find yourself joining the back of the queue, which is not what you need if your client needs a quick turnaround.
• Even with freelance contractors it is wise to have a written service agreement, otherwise you will be running risks in respect of: confidentiality, intellectual property, liabilities for unpaid tax, accidental damage, insurance, even industrial espionage. After all, a freelancer is free to work with anybody they please, and that could include your biggest competitor. At best, that could lead to a conflict of interests; at worst, they could give away all your trade secrets...
• If your freelancer’s laptop gets stolen, along with all the work they have been doing for you, you will want to be sure they have adequate insurance and backup systems in place.
• And if they are in contact with your customers, you’d better have something in place to stop them offering their services on a direct basis, or you may find yourself cut out of the equation altogether.
• The distinction between an employee and a freelancer is not always clear cut. If freelancers end up spending most or all of their time working for you, if they use your equipment on your premises, if you have a significant amount of control over how they do their work, and if you want them to do the work personally rather than sending along a substitute, you may unwittingly create a de facto employment relationship. Then, the taxman may come after you for unpaid tax potentially going back years, and you may find your “freelancer” is able to claim employment rights such as unfair dismissal, holiday pay or redundancy pay. So much for avoiding bureaucracy!

It would be nice if life could be simple, but it’s not, so think carefully before sealing any deal with just a handshake, and put a written service agreement in place. Better safe than sorry!