Contractors and freelancers are the ideal solution for SMEs requiring a low risk, short notice source of skills, expertise and extra capacity.

This week sees the unveiling of HMRC's new online business entity test which will allow contractors and freelancers to determine the level of their IR35 risk. HMRC intends to use the test to screen contractors and seek out any who could be considered as "disguised employees". It is all part of the Government's aim to better administrate IR35, however I believe the new test will read like children's fiction unless the taxman puts some clear benchmarks and measures in place.

Despite the potential challenges ahead, contractors and freelancers are the ideal solution for small firms requiring a low risk, short notice source of skills, expertise and extra capacity.  

When a business is growing fast, or launching new products or services into different markets, the solution for many small to medium sized firms is to hire employees to cope with the increased workload. But when your business takes on a new employee, you are also taking on a raft of new risks that, in the current economic climate, could make the difference between your business making a profit or becoming an insolvency statistic.

There is another way to access the specialist skills required for, say, a first-time export-led product launch, or to provide an extra pair of skilled hands requiring no learning curve of training that can deliver extra capacity instantly. You could hire a freelancer.

Access and pay for only the skills you need, when you need them

If you need a graphic designer for an afternoon, but not on the payroll, or perhaps your website needs to be able to take orders in euros but there’s no room in the office for an IT department, you could be looking for a freelancer.

Freelancers are typically highly skilled workers who work on a project basis and are paid a fee for what they deliver, be it a new brochure design, an online shop that takes euros, or even the re-engineering of part of your production process.

You brief the freelancer on your project requirements, agree the deliverables – a brochure, website or engineering report – and the fee, which is usually agreed on a fixed-price basis. You might create a contract, but more often agree the specification and price by an exchange of emails.

The freelancer heads back to their office, often at home, and completes the work. If the final product is not exactly what you agreed, the freelancer keeps going until they get it right, but at no extra cost to you.

Longer-term flexible support, still with no strings attached

If your business is growing sufficiently that you need some longer-term assistance but still don’t want to hire a full-time permanent employee, perhaps because you want to first see if a launch or sales campaign into a new market is a success, then a contractor may be the solution.

Whilst freelancers tend to work on smaller, shorter projects on a fixed-price basis and generally from home, a contractor will usually work in your office for weeks or months and be paid by the hour or day. But contractors are still flexible, highly skilled and, importantly, not your employees. And you have the added benefit that your employees can soak up knowledge from the contractor when they are working onsite.

As you may guess from their name, contractors typically have a contract but, crucially, it will be a contract for services between your business and their limited company, and not a contract of employment.

Freelancers and contractor benefits versus permanent employees

Employees, freelancers and contractors can all play a role in your business’s resourcing strategy.

Over the long term, your employees will grow and become the core assets that ensure your products remain at the cutting edge and of high quality, and your services are delivered to exceed your customer’s expectations. You employees also represent your leadership pipeline, and should be nurtured accordingly.

Freelancers and contractors can also benefit your business by providing expertise and additional capacity only when you need it, for a fixed cost and with little risk. Hiring freelancers and contractors is hugely transparent. That’s because, unlike permanent employees, freelancers take care of their own tax and National Insurance, sick and holiday pay, pensions, etc, and don’t receive benefits, so their fees are genuinely all you pay. Most even hold professional indemnity insurance, giving you complete peace of mind.

You also don’t have to wait for a freelancer to work their notice before working on your project – many can start within days, if not hours. And when the project is completed, they leave with no redundancy costs or notice periods.

So, whether it’s a three hour or a three month project, next time you need additional skills and capacity that will enable your business to grow, why not think about hiring a freelancer or contractor?