In the UK, April’s changes to national insurance and minimum wages are likely to impact businesses, causing a rise in employer costs and forcing businesses to take action. This may include working with freelancers instead of increasing the size of their permanent team to reduce staffing costs.
Yet different business sectors have different attitudes towards freelancers, some being more accommodating than others. How does this play out?
A new survey from the firm Coople explores how businesses feel about the recent changes and their opinions on hiring freelance workers.
The survey polled 500 business owners and senior decision makers at UK SMEs about their staffing decisions and their concerns for the future. OnePoll, an accredited survey company, conducted this survey on behalf of Coople.
Two thirds of companies shared that they work with freelancers at least some of the time, at 66%. Of those that do not, there is an almost even split between businesses that would consider it, and those that would not.
Why take the gamble with freelancers?
The top two reasons for working with freelancers were flexibility and gaining access to specific skills, both at 62 percent. However, a high percentage of businesses also mentioned cost as a factor. The data shows that while UK businesses benefit from working with additional staff who can contribute different skill sets when needed, it is not cost-effective to bring in these staff as a permanent addition to the team. The increase in minimum wage will likely intensify this effect.
What impact will UK tax changes have?
In the UK, the minimum wage has risen for employees over 21 by 6.7%, and younger people’s wages increased by an even greater percentage (16.3% for workers aged 18-20, and 18% for workers aged 16-17). Employers also need to increase the amount of each employee’s earnings they pay as Class 1 National Insurance contributions from 13.8% to 15%.
From the survey, 79% of all SME leaders said their staffing costs would increase. In more detail, 53% said costs would rise somewhat, and 26% answered that costs would rise significantly. 16% of businesses said they expected costs would go up a little, but only 4% thought costs would not increase at all. This potential strain on business finances might push SMEs towards working with freelancers or other flexible staff as opposed to hiring full-time team members.
Legal issues
Consequently, 14% of businesses said they do not currently work with freelancers,; yet, they go on to indicate they would consider this employment activity. This consideration might indicate that more businesses are thinking about working with freelancers to manage the increase in costs.
However, the survey highlights worries about legal issues such as misclassification may be driving business leaders away from hiring freelancers. The questions asked businesses to share how aware or unaware they were of the potential legal and financial risks that come with hiring freelancers, including compliance with employment laws, liability for unpaid taxes and misclassification. 46% said they were “somewhat aware”, with 28% describing themselves as “very aware”. However, nearly one in ten business leaders said they were unaware, with 5% “somewhat unaware” and 4% “very unaware”.
When businesses misclassify workers and do not provide them with the rights they are entitled to, they can find themselves at risk of financial penalties and legal issues, as well as reputational damage. Two examples of these cases include Uber and courier company Stuart Delivery, both of which lost cases in 2021 and 2023 respectively, for failing to classify their self-employed staff correctly as “workers”.
The line of questioning asked business owners how concerned they would be about these risks, if they were to work with freelancers, and the majority said they would be concerned, at 71%. 41% would be “fairly concerned”, with 30% “very concerned”. 19% were neutral and 10% expressed low or no concern. This suggests that while the appeal of reducing costs is prevalent, businesses are also wary of the complexities and potential legal issues that might come with hiring freelancers.
The study also investigated how much time and resources compliance with employment law requires from businesses. 54% said it costs them “a fair amount”, but for 35%, more than a third, it costs “a great deal”. Only 10% said it does not cost them very much, and only 2% said it costs nothing at all. Regulations that changed earlier this month as well as future upcoming legislative changes could increase the time and cost that it takes businesses to keep up.
Taxation
Coople’s survey then asked businesses how complex they find it to correctly calculate and process taxes, social security contributions, and insurance obligations for freelancers. The highest percentage, 43%, said they found it “somewhat complex”, with 23% finding it “a little complex”. However, nearly one in five at 19% find this “very complex”. Only 10% said that it was not complex at all to complete these tasks. This indicates that extra admin work could be a barrier for some businesses that may be considering working with freelancers more.
Overall, the survey data suggests that SMEs are anticipating a significant increase in staffing costs because of regulatory changes, and this financial pressure might drive more businesses to utilise support from freelancers.
However, the survey highlighted some concerns regarding the legal and financial risks associated with working freelancers, particularly around worker misclassification. So whilst some businesses might utilise freelancers more, some remain hesitant because of legal complexities. There are other kinds of flexible support that businesses can access instead of freelancers, for example staffing agencies, which the data revealed some companies are turning to.
While 23% said regulatory changes would not affect their decision to work with freelancers, 31% were unsure, and 17% said they would avoid hiring freelancers. 19% of business leaders said they prefer to work with staffing agencies to minimise risk. Agencies take on the responsibility of handling paperwork, worker classification and NICs for their flexible staff.
