Freelancers payroll cost set to increase by 20%?

5th April 2016

Any business currently using a mix that includes temporary labour may be in for a hefty rise in the cost of having the freedom of people off the employee payroll, with claims of a 20% rise in employment costs by using this type of worker.

The changes in the Government and HMRC position with regard to potential tax avoidance has given rise to estimates of nearly half a million umbrella company workers who will be worse off financially as a result of the changes, that came into place April 2016.

Not your problem? Think again.

With a buoyant employment market and claims that workers will potentially lose up to £120 per week because of the changes, and up to £6000 per year, this temporary labour market will look to business to fill the gap. Workers employed through an employment intermediary, such as an umbrella company (a company employing workers and supplying them to business), a personal service company (PSC) or a recruitment agency/employment business will be affected.

The Government and HMRC openly admit that businesses may see a rise in the direct cost of hiring temporary and contract staff through employment intermediaries.

They want to close the tax loopholes and bring freelancers payroll costs in line with those employers who are currently taking on temporary workers without the use of employment intermediaries and therefore not benefitting from tax relief on travel and subsistence.

The suggested 20% rise will be as a result of those workers seeking to backfill this loss of income through their employment intermediary.

So for most businesses the use of freelancers will need to be considered very carefully going forward. Of course for short term projects getting the expertise at the right price may just have to be stomached by the employer but if temporary workers are a larger proportion of the employment mix in your business you may want to look strategically at whether permanent PAYE, zero hours, apprentice and part-time employees may be used instead.