Considerations for hiring through freelance marketplaces
If you are a business working with a freelancer through a marketplace, you need to ensure you have made the necessary checks and have a robust contract for services in place to ensure you don’t fall foul of employment and tax legislation (IR35). The contract can be instigated by you or the freelancer.
Firstly, HMRC will want to ensure the correct tax is being received (i.e. PAYE and national insurance). IR35 is legislation designed to combat workers who fraudulently claim to be contractors for tax benefits, therefore, it’s essential the freelancer is IR35 compliant.
It’s crucial, for tax and employment law purposes, the freelancer is considered to be genuinely self-employed and not, to all intents and purposes, an employee, otherwise, you may be liable to pay the tax and national insurance due (and incur penalties). Also, if the freelancer is found to have ‘employee status’ then they will have a range of statutory rights including protection from dismissal, minimum wage and holiday entitlement; they may also be entitled to maternity, paternity, sick leave and pay - and so on.
As a company engaging a freelancer, you should be aware of how to distinguish a genuine freelancer from an employee.
There are three main factors to consider:
- You need to look at how much control the freelancer has over their work and how they carry it out.
- There should be no mutuality of obligation on the freelancer to undertake the work and, for the company, no obligation to provide any work.
- There should be a right of substitution – it doesn’t matter that the right is rarely exercised – but this clause goes to the heart of the nature of the arrangement (as employees and workers are engaged under a contract for personal services).
There are other points to consider, for example, not treating the freelancer as an employee, not giving access to employee benefits or fully integrating them as part of a team for the benefit of clients. It should usually be clear both internally and externally that the individual is a freelancer.
One final point, the wording in any contract or agreement will not necessarily be enough to persuade HMRC or an employment tribunal; they will look at what actually happens in practice and the intentions of the parties when deciding whether the status is that of freelancer or employee.
For businesses, the legal and practical aspects of using different types of worker or employee can be a mine-field. The most important point is to be clear on the worker’s employment status and then comply with the relevant employment legislation and tax rules for that type of worker.