Using freelancers instead of employees

Aug 29
3 min read

Updated: 2 days ago

Introduction

A business engages somebody as a freelancer to avoid the cost and obligation of employment. Two years later that person works set hours, uses the company's equipment, takes instruction daily, has no other clients and cannot send a substitute.

They are described as self-employed and, on any realistic assessment, they are not. Employment status is determined by the substance of the relationship rather than by what the paperwork calls it, and businesses that get this wrong face back-dated liabilities that arrive all at once. The assessment covers the whole period, not the point at which it was noticed.

1. Using freelancers instead of employees depends on the actual relationship

The paperwork does not decide it.

Authorities and tribunals look at control, whether the person must do the work personally, mutual obligation, financial risk and integration into the business. A contract describing somebody as self-employed carries very little weight against those facts.

2. Know what the test is where you operate

Jurisdictions differ substantially.

Some have statutory tests, some have case law, and several have distinct categories between employee and self-employed with their own rights. Establish the framework that applies to you rather than relying on general advice from elsewhere.

3. Watch the control factor

Usually the most decisive.

Who decides when, where and how the work is done. Setting hours, supervising the method and requiring attendance at your premises points strongly towards employment whatever the contract says.

4. Consider whether they can send somebody else

A genuine right of substitution matters.

If the arrangement requires that specific person and no substitute would be accepted, that points towards employment. Where a right exists on paper but would never be permitted in practice, it counts for nothing.

5. Look at how integrated they are

Part of the business or providing a service to it.

Company email address, appearing on the team page, attending internal meetings, being managed alongside employees. Each individually is minor; together they describe somebody who is part of the organisation.

6. Understand what you lose either way

The trade is real.

Genuine freelancers cannot be required to work set hours, cannot be told how to do the work, and can take other clients. Businesses want the flexibility of one status and the control of the other, and that combination is exactly what fails the test.

7. Get the contract right and then follow it

The document should describe reality.

Deliverables rather than hours, their own equipment where practical, control over method, and freedom to work elsewhere. A well-drafted contract that everybody ignores is worse than none, because it evidences that you knew the distinction.

8. Review long-running arrangements

Where the risk accumulates.

A freelancer engaged for six years, full time, with no other clients, is the classic case. Reviewing these periodically, and converting to employment where that is what it has become, is far cheaper than the correction being imposed.

9. Be aware of the rights that may apply regardless

Status is not all or nothing.

In several jurisdictions people who are not employees still have rights to minimum wage, holiday, protection from discrimination and pension arrangements. Assuming a freelancer has no rights at all is usually wrong.

Take advice where the arrangement is significant or long-term. The consequences of misclassification — back tax, contributions, holiday pay, penalties and potentially employment rights — arrive together and are calculated over the whole period, which is why this is worth an hour of professional time.

Conclusion

Recognise that status is determined by how you actually work together, not by the label.

Establish the test that applies in your jurisdiction, examine who controls when and how the work is done, consider whether a substitute would genuinely be accepted, look at how integrated the person is into the business, accept that genuine freelance status costs you control, draft a contract that describes reality and then follow it, review long-running arrangements periodically, remember that some rights apply regardless of status, and take advice where the exposure is significant.