Updated: May 29, 2019
If you are freelancing or decide to freelance, what are you rights and what terms should your freelance contract include? This all depends on whether you have the legal status of an “employee”, a “worker” or a “self-employed” person/”independent contractor”.
If you are carrying on business genuinely on your own account i.e. you have a sufficiently independent position from the businesses that you work for such as being able to appoint a substitute to undertake the work in your place; you provide your own equipment (such as a laptop or phone); you decide when and how you work; are not under the direct supervision of the business you work for; you take on financial risk; and you can work for a number of different businesses, then then you are an independent contractor/self-employed. This means you are responsible for accounting for your own tax to HMRC and you are not entitled to holiday or sick pay from the businesses you work for and are not able to bring a claim for being dismissed unfairly.
In putting together a freelance contract for the businesses which you work for, you would want to cover the following key terms:
What services you will provide and the timescale;
Confirming that the relationship is one where you are an independent contractor and that you are responsible for payment of your own income tax and national insurance contributions;
What the rate will be for the work, for example, will it be paid at a day rate or per project and whether VAT is applicable and when your invoices have to be paid by. You may also wish to include provisions setting out that interest will be payable if the client delays in paying you;
That the client will reimburse all expenses properly and necessarily incurred by you in providing the services;
That your contract with the client does not prevent you from doing work or performing services under another contract for a different business;
That you can provide a substitute at your own expense to undertake the services in any circumstances (you will want to consider separately how the relationship between you and the substitute will be documented) i.e. you do not have to provide personal service;
The client will expect there to be obligations in the contract which cover confidential information, intellectual property rights and data protection to protect its interests so these should also be included; and
What the termination provisions are.
It is beneficial to have a well-drafted contract to adequately protect your interests, for instance, in terms of the amounts due to you and what the parameters are for the work.
You may wish to consider with your accountant whether you should set up a legal entity and provide the services through that legal entity. You will also want to consider putting in place comprehensive insurance as you will have personal liability for any loss incurred by the client in connection with the provision of the services by you.
If the business you are working for describes the work as “freelance” in the contractual documentation between you but the arrangement is not one where they are your client or customer and you are integrated into their business, then this may infer that you are a “worker” or “employee” in accordance with the legal tests regarding employment status. It is important to note that how the contractual documentation refers to the relationship is not determinative; the courts and HMRC will look at what the reality of the relationship is between the parties.
You do not want to get it wrong as if you have been treated as self-employed and you are not, HMRC may seek recover of the tax and NICs which should have been paid, going back as far as six years together with interest and penalties. HMRC has a questionnaire which you can complete to check your employment status for tax purposes: https://www.gov.uk/guidance/check-employment-status-for-tax.
Set out below are the differences between “employees” and “workers”.
Employees are entitled to the full package of employment rights – they are entitled to all the same rights as workers as well as, for example, the right to unfair dismissal, a statutory redundancy payment and statutory minimum notice periods.
An employee is someone who works under an employment contract. For an individual to be considered an employee, there needs to be the following:
Personal Service – they are required to provide their own work personally for the employer, i.e. they cannot provide a substitute or subcontract their service obligations;
Mutuality of Obligation – the employer is obliged to provide work to the individual and the individual is obliged to accept that work and perform the work offered; and
Control – the employer has ultimate authority over the individual in the performance of his or her work. For example, the employer would be able to:
- direct how, when and where the work is done;
- monitor the individual’s attendance;
- determine when holiday is to be taken; and
- be in charge of disciplining the individual.
A “worker” is an intermediate category, between a self-employed person and an employee who is entitled to a basic package of employment rights and if you are a worker you would be entitled to:
the national minimum wage;
certain minimum rest periods;
a maximum limit on weekly hours (unless the worker has opted out);
statutory sick pay (if you meet the eligibility criteria); and
to be auto-enrolled into a pension scheme and paid minimum pension contributions (if you meet the qualifying criteria).
You would want to ensure that any contract produced by the business you work for covers your entitlements to the above if you are an employee or worker.
A “worker” is someone who, like an employee, has to personally perform work for the business. However, there is no obligation on the employer to provide work to the individual and if work is offered to the individual, they are not obliged to accept the work offered by the employer, for example, an individual working on a zero hours arrangement.
Relationships change over time - you may have started out working for a business on a self-employed basis but over time the arrangement has fallen into a pattern of regular work and you are now integrated into this business so it is always important to keep the relationship under review as there is a possibility that you may actually be a “worker” or an “employee”. If you consider that you may be a worker or employee, you could raise with the business that the arrangement needs to be formalised on that basis.
Lousie is a Partner and specialises in employment and partnership law at Winckworth Sherwood in London. Louise is a trusted advisor to UK businesses and senior executives advising on all aspects of employment law. If you require more legal advice on becoming a freelancer, please contact Louise https://wslaw.co.uk/our-people/louise-lawrence/
(This blog is not intended to be an exhaustive statement of the law and should not be relied on as legal advice to be applied to any particular set of circumstances. Instead, it is intended to act as a brief introductory view of some of the legal considerations relevant to the subject in question. May 2019)