The world of work has changed in a post pandemic world, both in where people conduct their work but also how. The side hustle has developed into an increase in people working in a contract or freelance capacity in their day-to-day jobs, giving them extra flexibility in their lives and essentially becoming their own boss.
Many industries have been tapping into this resource for decades but for other business leaders this is a new experience with pitfalls to avoid.
Contract and freelance arrangements offer numerous advantages; expanding to meet workflow demand, bringing in specific skill sets, reducing the risk of hire and much more, the list of benefits are endless. However there are many other things to consider when taking on a contract/freelance placement.
Rates – One key consideration is the difference in rates between contractors/freelancers and their permanent counterparts. Contractors and freelancers can command higher rates because of their experience but also because the hidden costs of employment are worked into the rate, sick pay, holidays, pension, ENI and equipment. When evaluating the costs based on the actual number of days worked, the gap between the two options begins to narrow significantly.
Tax Implications – With IR35 legislation very much in the news over the last couple of years this can create hesitancy for clients wanting to engage with contractors. IR35 is an area of tax legislation designed to reduce tax avoidance and application of IR35 is intended to identify legitimate contractors and ensure all parties are taxed appropriately. IR35 has been around since 2000, so it’s not new legislation. It has been in the news because there has been a shift in the responsibility from the worker to the client, of who determinates if the role is inside or outside IR35. This in turn determines what tax needs to be deducted at source by the party paying the worker. There are caveats and exceptions for this where you are either a small or large company.
Roles inside IR35 can be less attractive to workers who operate as a Limited Company, if the rate isn’t adjusted to take into consideration the extra income they will effectively lose.
Oscar Dixon-Barrow is an Associate Director of the International Creative Recruitment agency mustard jobs who have been operating for 14 years placing contractors/freelancers within thousands of firms, shares his expertise.
“Hiring contractors and freelancers can feel like a complex process, but it shouldn’t” said Oscar Dixon Barrow, Associate Director at mustard jobs “Our aim is to simplify this process for businesses, providing them with advice on compliance and access to top-quality talent. We are committed to helping our clients make the best choices when it comes to engaging temporary professionals. But don’t set yourself or the contractor up to fail. Make sure you have a clearly defined set of tasks/project to complete, be able to provide guidance and resources to someone, who might be dropping into your business at short notice, the information they will need to complete the project. And then ultimately there will be some questions you will need to answer on the size and scale of your business to determine if the changes in IR35 rules apply ”
In conclusion, taking on a contractor or freelancer can be particularly rewarding to hire at pace for niche skills, flexibility, short-term, and the management of workflow peaks and troughs, but navigating the tax implications can require additional awareness.
