Small businesses are under increasing pressure to find ways to balance the need to hire staff and the need to stay profitable. One of the simplest ways to achieve this, where a full-time hire can not be justified, is to make sure they only pay for staff when they are needed. This flexible way to manage a business’ wage bill has created a market for both on-demand freelancers and staff with zero hours contracts – people whose desire for flexibility in their working lives suit the business’ staffing requirements.
If you are considering your recruitment options and think flexibility is an important factor when hiring staff, you need to understand the differences between freelancing and zero hours contracts.
Freelancing and zero hours contracts are not the same
Freelancing and zero hours contracts are completely different. They may appear similar because of the degree of flexibility they offer you, but from an employment status and tax perspective, they are worlds apart.
A freelancer is typically self employed and offers their services under a ‘contract for services’. As a small business owner, it means you are not ’employing’ any freelancer you work with. Freelancers, as independent businesses, have complete autonomy. The freelancer has full control over when, where and how they work. They provide their own equipment, work to a contract and are financially liable to resolve any mistakes in their work. Freelancers are also not entitled to employment benefits like sick or holiday pay, and they manage their own tax and national insurance contributions.
By contrast, a zero hours contract is simply an employment contract that does not guarantee a minimum number of regular hours each week. A zero hours contract, just like any other employment contract, gives the individual you hire ’employee status’, which comes with a range of employment rights and responsibilities.
An employee on a zero hours contract, is expected to work at a specific place and during specific hours. A freelancer, has the ability to set their own time and place of work. An employee has rights to holiday pay, maternity and paternity rights and also redundancy payments. A freelancer, does not have these rights.
Freelancing is a career choice growing in popularity
Freelancing and zero hours contracts are both flexible career options but knowing the difference is important. The Office of National Statistics shows in 2015, there were 800,000 people on zero hours contracts. IPSE, the body representing freelancers, says there were 1.9million people freelancing in the UK in 2015.
As skilled workers look to freelancing to enjoy the flexibility of location and working hours, more small businesses will need to follow the trend of hiring freelancers in order to hire the skilled workers they need.
Gartner has predicted by 2020 that we’ll see 30 per cent of the UK workforce freelancing, up from 6 per cent currently (2016). They also suggest the business of the future will comprise of almost entirely freelancers, with only the management team being traditional full-time employees.
As this growth in freelancing continues, the lines between an employee and a freelancer may blur slightly. For a small business owner, however, it’s important to know the benefits and differences.
Gary Elliott is marketing director of weliketowork.com.