If this your first time taking on staff, this may appear daunting. You might be unsure about the most prudent approach for your new business and whether the employee or the freelancer route is most suited to you in the early stages. 

Each option has various considerations and getting the decision right may be fundamental to your business’s development.

What is the difference between an employee and a freelancer?

In a very brief summary, an employee is somebody who works for you under your control and direction, whom there is a mutuality of obligation in place with (i.e., you are required to provide them with work, and they are required to accept it and carry it out). 

You are required to pay them regardless of circumstances, and they will likely have regular and routine working hours (although not always). Also, they will have full employment rights.  

On the other hand, a freelancer will be self-employed without control, direction, or mutuality of obligation. They are generally free to take on any work or clients and will only be paid for their work. A freelancer bearing the genuine hallmarks of self-employment will not have employment rights.

Should I take advice if I am unsure of their correct employment status?

Yes. The above is only a brief overview of a complex field of law, and you do have to be careful and take the appropriate advice on a case-by-case basis, if you’re unsure of your status or if the proposed arrangements are in some way non-standard. 

The modern gig economy has given rise to many variations of traditional working patterns and increasingly hybrid working arrangements. 

Above all, do bear in mind if someone is working for you in an employment-type capacity (that is, they are under your control and have the guarantee of an obligation to work for regular pay). The likelihood is that they will be considered an employee of yours, with accompanying employment rights.

What are the main pros and cons when hiring freelancers or employees?

Hiring employees 

The principal benefit of taking on employees is that they help bring the security of labour supply and, therefore, a stable platform to your business, which serves as a springboard for growth. 

It’s typically the case that a company with permanent employees is more self-functioning, particularly once a managerial hierarchy is put in place. As such, it may lead to increased value for your business and/or attractiveness to investors and future buyers.

The main downside to hiring employees is that it increases the immediate risk profile of your startup since employees must always be paid irrespective of the cash flow position of your business. 

In addition to salaries, there are other linked outgoings, including pension contributions and employer’s national insurance contributions.

Hiring freelancers 

The upside of hiring freelancers is that you can fine-tune your labour supply according to the ups and downs and needs and demands of your business from time to time. This ‘elasticity’ in your workforce is excellent for periods of high demand and, likewise, helps protect you in times of downturn or in the event of external circumstances affecting your business, as we saw during the pandemic.

On the other hand, while freelancers want to keep you as a client, your company’s success is not their priority. Also, they determine who, what, when, where, and how the work is performed and set pricing. 

Do I need to put contracts in place?

You must put in place professionally drafted contracts that reflect the circumstances of each case. This applies to both employees and freelancers. These contracts will protect your business and remove ambiguity.

Wrapping up 

Knowing which kind of worker will make your company thrive is difficult. However, you can always reach out to a commercial or employment lawyer with appropriate expertise to help you find the perfect balance for your team and also support you in drafting the necessary contracts.