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Employee or Freelancer: Which is the Right Choice for Your Business?

man and woman sat on sofa talking

As a business owner, one of the biggest decisions you will need to make is whether to hire an employee or a freelancer to help you with your business needs. Both options have their advantages and disadvantages, so it's important to carefully consider your unique situation before making a decision.

Hiring an employee can be a great option if you're looking for someone who can work for you consistently. An employee is someone who is committed to your business and has a vested interest in its success. 

They can also provide a level of consistency that a freelancer may not be able to provide. Additionally, you can train an employee to do the work exactly the way you want it done, which can be a big advantage.

However, hiring an employee also comes with its own set of challenges. For one, you’ll be bound by employment laws which if you stray outside of the rules, could come at a significant cost. 

With a freelancer, you would simply pay their invoice. However, with an employee, you would need to register your business as an employer with HMRC (if taking on an employee for the first time) and pay them via PAYE through an approved payroll software or better yet by employing the expertise of an accountant to run payroll for you.

When paying your employees, you will need to deduct any income tax and national insurance contributions from them and pay that over to HMRC on their behalf. 

You will also be liable to employer's national insurance contributions at 13.8% and also pension contributions of 3% for eligible employees. 

It’s important to factor in these costs too when comparing the cost to your business of an employee versus a freelancer.

Furthermore, if business slows down, you may be forced to let them go which can be a difficult decision. Whereas with a freelancer you are more likely going to be able to flex your use of their services up and down to meet the demands of your business.

Hiring a freelancer can be a great option if you are looking for someone to help you with a specific project or task. Freelancers are often experts in their field and can provide a level of expertise that you may not be able to find in an employee. They also allow you to keep your costs low as you only pay for their services when you need them.

However, working with a freelancer can also be a challenge. They may have other clients and commitments, which can make it difficult to schedule work. Moreover, it may be difficult to ensure the quality of their work, especially if you haven't worked with them before.

Ultimately, the decision to hire an employee or freelancer depends on your unique business needs. If you are looking for someone to work with you on a consistent basis and can provide the necessary benefits, then hiring an employee may be the best option. However, if you need someone to help you with a specific project or task, then working with a freelancer may be the way to go. It's important to weigh the pros and cons of each option and make a decision that is best for your business.

If you do decide to take on your first employee, here’s our checklist covering some of the basics you’ll need to do:

  • Register your business as an employer with HMRC

  • Set up payroll with an approved software provide or enlist the expertise of an accountant

  • Register with an approved workplace pension provider

  • Ensure you have a contract of employment, job description, and employee handbook for your new employee

  • Take out employer's liability insurance, this is a legal requirement when taking on an employee

Becoming an employer for the first time can feel both daunting and exciting at the same time. It’s often a huge milestone for your business that brings with it a whole new set of responsibilities.

Enlisting the expertise of both an accountant and a HR professional can set you up for success.

If you’d like to know more about how we can support you in becoming an employer or assist you in the decision making process of whether to take on an employee or a freelancer then book in a discovery call using the button at the top of the page. 


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