Deciding whether to bring on a freelancer or a full-time employee when hiring for your creative agency can be a challenging decision. Although freelancers are an essential part of many agencies and can bring a range of benefits, you might wonder if they can replace a permanent team member.
In this article, we will explore the financial and tax implications of using freelancers versus permanent employees.
While freelancers can provide flexibility, specialist skills, and help manage peaks and troughs in workload, there are also significant costs to consider. Ultimately, the decision will depend on your agency's unique needs, long-term goals, and budget.
By weighing the pros and cons of both options, you can make an informed decision that aligns with your agency's values and priorities.
It's important to remember that freelancers are inherently expensive over the long term since they're running their own business and need compensation for the risk they've taken on. Freelancers don't enjoy the same job security as a permanent employee and they build the additional risk into their price. However, they're often specialists in a certain area, such as copywriting or development, and can deliver high-quality work quickly.
Agencies often experience peaks and troughs in the volume of work they have, making planning for future staffing requirements difficult. By opting to work with freelancers, you can benefit from extra team members during busier times and a smaller, less costly permanent team when things settle.
Freelancers can help reduce the risk of recruiting permanent staff outside of your long-term resourcing plans. However, it's important to remember that freelancers usually work with multiple agencies and manage their own workload, so they may not be available when you need them.
Furthermore, freelancers can bring specialist skills that you don't have in-house, enabling you to deliver high-quality work to your clients. Building an in-house team of specialists in all areas takes time and money, and isn't an option for most agencies, especially in their early days. Freelancers are great for plugging the skills gaps in your core team.
There are also different tax considerations for each.You must assess Freelancers against IR35, the regulation that determines the working status of contractors. It’s made the situation much more complex in recent years. As the hiring agency, you need to assess your contracts against a set of criteria and determine whether they sit 'inside' or 'outside' of IR35.
Being deemed inside IR35 means the freelancer must be taxed as an employee, sometimes leading to further responsibilities on you. These changes could make freelancers more expensive in the future and reduce the pool of talent available on a freelance basis. All of this can increase your spending on legal, HR, and Financial expertise.
In conclusion, there will always be a need for freelancers, whether to smooth peaks and troughs in workload or to bring in specialist skills. However, generally, they're more expensive than using a full-time employee, and that's the price you pay for flexibility. As always, please contact your accountant if you're unsure whether to hire a freelancer or permanent staff and how their tax treatment affects your business.