Using Freelancers - 1x1 for Employers

Freelancers who hire you for specific projects are an extremely valuable resource for your company and your project success. Thanks to their special skills and flexibility, they can effectively complement your permanent employees. But: Freelancers have significant differences in employment law compared to permanent employees.

In this blog article, we explain in which industries they are used most frequently, what differences there are with permanent employees and what you need to consider as an employer or client when it comes to bogus self-employment.

What are freelancers?

Freelancers differ from permanent employees because they are independent business partners who accept orders from your company. Cooperation is not based on an employment contract, but is based on a fee contract, service contract, work contract or a combination of these types of contract.

Freelancers usually work with different clients at the same time and make independent decisions about which assignments they want to accept. In doing so, they are not subject to social law provisions for employees, but must take care of their own health insurance or pension. It is also the job of a freelancer to independently pay taxes on income.

Freelancers, freelancers, freelancers — or simply self-employed people?

The difference between a freelancer and a freelancer is purely linguistic. Both terms mean the same thing: a temporary employee who works independently. The choice of name varies depending on the industry, with freelancers being more common in the areas of media, design and advertising. Lawyers, doctors or lecturers, on the other hand, prefer the term freelancer.

The term “freelancer” has tax meaning. Because: Although freelancers are self-employed, not every self-employed person is in accordance with Section 84 (1) Commercial Code automatically classified as a freelancer. The clear definition of this is provided by tax law, in particular by Section 18 Income Tax Act. Certain professional groups such as doctors, midwives, lawyers, tax advisors, architects and engineers are clearly considered freelancers and are therefore not subject to business tax.

In areas such as IT services or agencies Some tax offices assign self-employed workers to traders rather than freelancers. For example, if IT professionals work exclusively as lecturers for several institutions, they can claim freelancer status. However, an IT expert who advises companies on how systems and security measures must be taken is recorded as a trader and must also register this trade with the competent authority.

In which industries are freelancers employed?

Freelancers are usually employed for specific projects for a limited period of time. The hiring of freelancers has been established in the IT sector for years. For example, an experienced programmer can spend several months developing new software at various companies within a year.

However, freelancers are also in various consulting functions — such as management consulting — active. They are also frequently found in the media industry. In this context, many newspapers are increasingly relying on a small permanent base of editorial staff and obtain articles or reports from freelance editors.

Freelancers vs. permanent employees — What are the differences?

Compared to permanent employees, freelancers enjoy lower legal protection. While they do not receive continued payment of their wages in the event of illness and are not paid even during their vacation, their contractual commitment is usually limited to a project. The due date and amount of the fee, which is referred to as a fee or fee depending on the sector, depend on the individual contract. Health insurance must also be considered. Freelancers are not automatically covered by law. Here is the option of voluntary contributions for health insurance companies. If freelancers are used in your company, you should consider how they differ from your permanent employees:

Using freelancers: benefits for employers

Do you have a specific project for which you’d like to hire a freelancer? These are the benefits you can gain from such a collaboration:‍

Project Planning

Freelancers are especially valuable when you need additional personnel or specific skills for large-scale or high-impact projects. External freelancers can join your team for the duration of the project and contribute to its success during that exact period.‍

Cost Efficiency

Since freelancers are not permanent employees, you are not required to pay social security contributions as you would for full-time staff. This can make hiring a freelancer more cost-effective than employing someone permanently.‍

Flexibility

Freelance contracts generally do not include mandatory notice periods, allowing for a short-term termination of the collaboration.

As an employer, you can benefit from freelancers’ ability to quickly adapt to new tasks and achieve high productivity in a short time. Furthermore, due to their involvement in various projects, they usually bring a wealth of experience. Freelancers are experts in their specific fields, which makes them ideal for clearly defined tasks within your project. A higher fee should not deter you, as the investment can prove worthwhile. Thanks to the strong competition among freelancers, you can also expect a high level of performance.

If the freelancer is not working directly within your company but instead uses their own infrastructure, this creates a significant cost advantage. You don’t need to provide computers, phones, or office space.

Using freelancers: disadvantages for employers

As with any situation, there are two sides to the coin – and working with freelancers can also present some disadvantages for you as a client:‍

Availability

Freelancers usually work for multiple clients. This means their availability for your project is not automatically guaranteed. A freelancer you’ve worked well with in the past may not be available for your next project, and you might have to look for an alternative.‍

Onboarding

Although every freelancer is an expert in their field, working styles can vary significantly between companies. Therefore, each time you work with a new freelancer, you’ll need to explain your processes again to ensure the best possible project outcome.‍

Team Spirit

Freelancers who regularly come and go are often not fully integrated into your team. This can affect the company atmosphere and prevent a strong sense of belonging from developing. Resources invested in onboarding freelancers could also be used to strengthen the loyalty of your permanent staff.

A certain level of trust is essential for successful collaboration with freelancers, especially as they often gain deep insights into your company. A confidentiality clause in the cooperation agreement can help provide security in this regard.

Attention bogus self-employment!

How is bogus self-employment defined? Die German pension insurance Write about this:

“Fake self-employed workers are people who act formally as self-employed workers (contractors), but actually dependent employees within the meaning of Section 7 (1) SGB IV are. ”

An example of bogus self-employment could be the following case:

“Annika works as a graphic designer and has worked exclusively for a design studio for several years. Although Annika formally acts as a self-employed freelancer and concludes fee contracts with the design studio, her way of working and her dependence on it meets the criteria of bogus self-employment.

Annika works exclusively on her client's premises, uses his computer and software, follows the work instructions of the studio management and is involved in the studio's fixed working hours. Although she is formally self-employed, the actual organization of her work is more reflective of that of a permanent employee.

In this case, the German Pension Insurance could classify Annika's activity as bogus self-employed. This would have serious legal consequences for both sides, Annika and the design studio. ”

If bogus self-employment is established, both the contractor classified as a bogus self-employed person and you as the client face financial consequences and potential penalties.

As a rule, both parties are asked to pay all contributions to statutory pension, health, long-term care and unemployment insurance retroactively. The effects can be life-threatening, depending on the duration and amount of unpaid social security contributions.

There may also be criminal consequences. According to § 266a StGB can be fined or imprisoned for social security fraud if proven intent. This applies in particular if the employment relationship served solely to save social security contributions or if the bogus self-employed person received social benefits in parallel.

If you employ a pseudo-self-employed freelancer, there are legal consequences for you as the client. Not only do they have to pay back social security contributions and income tax, but the self-employed person also becomes an employee with all associated rights, including protection against dismissal, vacation entitlement and continued payment obligations. The tax office can claim payroll tax back payments of up to four years retroactively.

Attention: If proven intentional bogus self-employment, fines and even prison sentences can be imposed.

Use freelancers cleverly & bill effortlessly

The decision to integrate new team members as freelancers or permanent employees should be based on your needs. In the long term, a combination of freelancers and permanent employees could be the optimal solution. If you decide to regularly employ freelancers in your company, efficient collaboration is crucial. Our software ZEP provides you with the opportunity to simplify this collaboration by allowing you to work together with your freelancers in a project time tracking tool. With our central software platform, you can directly pay out the recorded time efforts as credits.

ZEP offers various features tailored to the needs of collaborating with freelancers. These include the ability to mark employees as freelancers and to choose whether a freelancer should issue invoices or receive credits. By allowing you to set internal hourly and daily rates for each employee and adjust them on a project-specific basis, you have maximum flexibility in setting compensation. Additionally, ZEP provides comprehensive reporting, giving you an overview of the credits already created.

The credit process significantly simplifies accounting. By directly paying out recorded time efforts, you save yourself from the complex invoicing process. Here’s how the credit process works:

Creation & Storage of Credits:

Based on the recorded time entries, you can easily and quickly create credits for your freelancers. These are securely and clearly stored in ZEP.‍

Configuration of VAT & Currency:

You can individually adjust the VAT and currency for each credit to meet legal requirements and the needs of your freelancers.

Automatic Numbering:

ZEP enables automatic numbering of credits in a configurable format, making management and tracking much easier for you.

With ZEP, you make the collaboration with freelancers transparent, efficient, and legally compliant – so you can focus on what matters most: the success of your projects.

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Conclusion

Freelancers are a valuable resource that can significantly contribute to the success of your projects through their flexibility and expertise. They offer cost-effective and targeted support for specific tasks. However, it is important to consider legal frameworks and address challenges such as availability and integration into your team. With careful planning and clear agreements, you can fully leverage the potential of freelancers and successfully integrate them into your projects.