Statistics as at 2012 showed that there were at least 1.5 million individuals working as freelancers or independent consultants in the UK. Most of these individuals were genuine, and they paid their taxes without any problem. In fact, majority of them preferred being on the payroll so they could pay their taxes like anyone else. But their employers didn't give them that chance because it suited them to have flexible, more cost-effective workers. But the increase in the number of freelancers working in the UK has put the spotlight on companies who use this method. The Government now wants regular freelancers to be put on the payroll.
Most employers now prefer hiring independent contractors because it's a cost-cutting measure. Instead of having the required amount of labour as their in-house employees, they prefer outsourcing some of their duties to freelancers. For instance, instead of having employees in the accounts department working on the financial status of the company, the boss would rather outsource these services elsewhere so the accounting department can concentrate on core business functions.
And since freelancers often get a small pay compared to what an in-house employee could get when they were employed for the position, it makes sense for the employer to save money, while also creating more time for their handful employees to focus on core business duties. Independent contractors are somehow indispensable.
There's a difference between an employee and an independent contractor. But the moment this independent contractor begins to play the role of a full time employee, it automatically makes them an employee of the company, hence their details should feature on the payroll. What's more, the nature of their work in a particular company should reflect the amount of compensation they're supposed to receive.
If in any doubt at all, a business should consult the expertise of an independent payroll solutions provider. In the UK there are loads of qualified payroll companies who can help and they are easy to find. If you are based in London search in Google for payroll solutions London; or if you are located in Devon search for payroll services Devon. You will be inundated with a choice experienced, and well respected payroll professionals.
The following are key differences that must be understood:
1. Efficiency. If a company agrees with an individual that work is complete at the end of a project they are a contractor. But if they are expected to do something else as soon as the project is done, they probably should be an employee.
2. Right of refusal. In an employer/employee relationship, there's something we call mutuality of obligation. If a freelancer can't prove that they have the right to refuse the work being given, then they are probably an employee and should be put in the payroll.
3. Substitution. In the event that the individual can never be substituted in place of another person to do their work, they are an employee rather than an independent contractor.
Therefore, if you're a limited company or a small business that consistently hires freelancers, you should evaluate them based on the factors above. If they are contradicting to your current setup, then it means you should get those individuals on the payroll. But if you consistently use the services of an independent contractor and you find that the above things don't apply to your case, you probably should leave things as they are.
The bottom line is that everyone should fall in their rightful place. As a small business owner, you should go with what's convenient for you in terms of cost and productivity. If the freelance worker is a regular and their services are indispensable, you should probably employ them. If not, they should maintain their employment status without feeling compelled to fit in the role of an employee.