Well done for starting up your small business and getting to the point that you need to start hiring people to help with your workload, or for specific roles outside of your area of expertise. However, this does raise a question; should you take on an employee, or outsource the work to a third party? Employees are paid via PAYE, so this will need to be set up prior to employing staff, and you may have to make NI contributions depending on how much money they receive, whereas contractors and freelancers are responsible for their own tax affairs, and are not subject to the same employment law regulations. Of course, a lot depends on your business model and the type of position you’d like to fill when making this decision, but read on to discover some advantages of each option, as well as potential drawbacks.
Availability – Sometimes people are far happier working as an employee, and you may find that the best person for the job just won’t work as a freelancer.
Expertise you can rely on – If your business has regular need of a specific skill set, having a dedicated person in-house is great as it means you’ll always have someone able to do the task at hand.
Continuity – Permanent employees are a part of your brand, and understand the operational procedures and performance expectations of your business, enabling you to provide consistent services to your clients. When using freelancers, you may find your go-to supplier for a particular task is busy, and have to take your chances on the work of a different one.
Loyalty – By accepting a position working for your organisation, employees make more of a buy-in to your brand and culture; they are a part of the team and will make efforts to further the goals of the business, and invest time and energy into company projects.
Draw customers – Particularly in client-facing roles, a permanent representative with whom customers are familiar can be a real boon, and can help draw in repeat business. Great employees can also bring in new business in their own right.
Greater control – With employees you tend to have more control over the way they work as you pay their salary; with a freelancer, you may have to adapt your methods to work with them successfully.
Costs – As employees benefit from job security, holiday and other perks, the hourly rate you’ll need to pay is usually far lower than you would pay a freelancer.
Flexibility – If you’re working with a freelancer and you don’t like their work, you can simply not engage their services again; this is much simpler than dealing with unsatisfactory employees.
No redundancies – If you experience a downturn in business, you won’t need to make redundancies, simply decrease the work you outsource to your contractor(s).
No need to train – When using the services of a contractor, they are trained in their field, and often have many years of experience, so no training is required. This is particularly useful if you have occasional technical work to undertake, as you can hire a specialist on an adhoc basis and can “piggy-back” on the expertise of the freelancer, without having to foot training costs and a permanent wage.
No PAYE/Tax – Freelancers are self-employed and are responsible for their own tax affairs. You won’t need to set up PAYE, nor will you be liable for any tax or National Insurance contributions.
Licenses – Contractors are also responsible for their own professional licenses/permits.
Employment law – As they are not employed, the usual employment law regulations do not apply to freelancers; holiday pay, pensions and other benefits are not a part of the terms of their work. This will save you money and administration time!
Costs – Although you will usually have to pay a contractor a higher hourly rate than you would their employee-counterpart, you might find you’ll save money in the long run; when employing the services of a freelancer, you pay for the work you need done, when you need it, rather than having to make regular monthly or weekly wage payments for a permanent team member.
So, there are many factors to consider when making this decision; a lot depends on the type of role you are trying to fill, and some positions can’t be filled by freelancers at all. Using the above points as a guide, you should be able to find the perfect match for your business. If you’re struggling, an accountant can offer advice which could help you ensure your hiring policies are as tax-efficient and cost-effective as possible. Why not get in touch with the experts at Neil Smith Accountancy to find out how we could help you?