As wages rise and National Insurance contributions change, more businesses are turning to freelancers in order to fill skill gaps. However, a recent study shows that there is still concern about legal compliance, worker misclassification, and possible penalties.
According to a survey by flexible staffing platform Coople 66 percent currently use freelancers but concerns about compliance are still prevalent.
Misclassifying independent contractors can lead to financial penalties, legal disputes, and reputational damage. Recent rulings against Uber and Stuart Delivery have reinforced these concerns, prompting businesses to examine their employment practices.
Rufus Hood is the General Manager UK of Coople. He told HR Review, “Our survey shows that UK SME Leaders expect their costs to increase as a result of increases in minimum wage and National Insurance Contributions. Over a quarter anticipate a’significant’ rise. The SMEs are also concerned about the financial and legal risks that they could face if they did not comply with employment regulations.
Fears of compliance with regulations temper the use of freelancers
Many businesses are hesitant to expand their use of freelancers because they have compliance concerns. While flexibility and the availability of specific skills remains a key motivator for working with them, 62 percent cite this as a reason. 14 percent of those who do not work with freelancers said that they would be interested in doing so. The attitudes are mixed. 31 percent remain undecided, while 17 percent say they will not hire freelancers because of current regulatory issues.
Fear of not being compliant is widespread. According to Coople data, 71 percent would be worried about the risks of hiring freelancers. 41 percent of these business leaders described themselves as being “fairly worried” and 30% as “very worried”. Only 10 percent of respondents expressed no or minimal concern.
This hesitancy may be due to a lack of knowledge about legal obligations. Nearly half of respondents (46%) described themselves as being “somewhat aware” and 28 percent “very aware” of legal risks. 9% of respondents admitted that they were unaware of all the legal risks, with 4 percent being “very unaware”.
Compliance and administration pose additional challenges
The survey also looked at how much compliance costs businesses in terms of time and resources. Over half (54%) reported that compliance costs “a fair bit” and 35 percent said it costs “a lot”. Just 10% of respondents said that compliance is very inexpensive and only 2% said it costs nothing.
43 percent of companies said that managing tax, social security contributions, and insurance obligations for independent contractors was “somewhat complicated”. 19% deemed it “very complicated” while 23 percent deemed it “a bit complex”. Only 10% found the tasks to be simple. This administrative burden could act as an additional barrier to freelance engagement.
While the cost increase is a concern, some businesses are forced to look at alternative options due to regulatory and legal requirements around hiring freelancers. 19% of business leaders prefer to use staffing agencies, citing the reduced risk and administrative responsibilities. The agencies handle the classification, NICs, and compliance for their clients. This makes them a safer choice for businesses that are risk-averse.
HR leaders will continue to be concerned about how UK businesses choose to employ talent, whether it is freelancers or not.
