LEGAL HOW TO GUIDE
GOLDEN RULES SO YOU OUTSOURCE WITHOUT PAIN
Outsourcing is when one business uses another business (also referred to as a sub-contractor or freelancer) to help it to do a job for a client/customer. Using others to deliver the work in this way can be a really smart business move. In particular it means that smaller businesses who are asked to do a large job or need highly specialised skills can deliver what they promise to their clients with the minimum of fuss.
However, like everything else in life you need to know and evaluate the risks of outsourcing so that you can minimise them. Should something go wrong it means your business will still be liable to your client, which would spell disaster for many businesses. It’s particularly important to think about this now, because you will probably be trying to organise a freelancer at short notice when it’s all too easy to forget something crucial. Here are three golden rules you can never ignore:
(1) MAKE SURE YOU’RE NOT TAKING ON AN EMPLOYEE
It may sound obvious but presumably, when using others to deliver the work, you don’t want an employee or worker (someone like an employee with only slightly less rights). Having an employee would mean you have to pay PAYE to HMRC (which could be backdated) and you could be liable for things like holiday pay.
When you’re contemplating outsourcing it’s really important to check that you are dealing with another established business – a sole trader or partnership registered with HMRC, or a limited company. You need to check this status out before you start work and see up to date evidence of it.
You also need to make sure that your outsourcing doesn’t inadvertently end up in any type of employment relationship, which could happen if you use the same person to the point where they spend all their working time with your business. This is because HMRC and the courts could see this as some type of PAYE/employment liability avoidance, despite what your intentions may have been. You also need to be clear about IR35.
(2) HAVE CLEAR ROLES AND RESPONSIBILITIES – WHO DOES WHAT AND WHEN?
It may seem obvious, but when outsourcing you need to be clear about what the freelancer is responsible for doing and when you need it. After all, you must ensure that you get the right job done within a time frame to meet that agreed with your client.
When using others to get the work done always make sure that the price is clear and also when this will be paid – either agree a fixed amount or agree an hourly rate AND the maximum number of hours they should work so that the final bill is not a shock.
You also need to be sure that you are not “acting” like an employer when outsourcing, because what happens on a day to day basis matters as it sets the tone of the relationship. So, for example, you may want to make sure that the freelancer shares some of the risk if something goes wrong, such as if the client pays you later than they should do.
Make sure that you also take steps to protect your business – for example, you don’t want your business to be “cut-out” from any future work between your client and the freelancer.
(3) WHAT WILL HAPPEN IF SOMETHING GOES WRONG?
Your agreement will be with your client who will expect you to put things right if something goes wrong. If the problem is the fault of the freelancer you need to be sure what they will do to put it right and the time frame for this. So, for example, if your client expects a problem to be rectified within seven days, it makes sense that you agree at least the same time frame (or a little less) with the freelancer.
Depending on the type of job the freelancer is doing, you may need to consider whether you should insist that they have insurance to rectify things should a disaster occur.
The good news is that you can minimise these risks to your business by having a clear written outsourcing agreement with the freelancer (a sub-contractor agreement) before you start working together. It does not have to be a complicated agreement, but one which sets out the important points in your relationship. Once this is in place you can then agree future work by asking the freelancer to agree a simple job sheet detailing the work which needs to be done.
You can achieve this by using our outsourcing agreement template – ideal for someone on a fixed budget. You know you’re using an expertly written document and all you need to add in are a few confirmations/insertions by following the accompanying instructions and you’re good to go.
It’s a legally fluid landscape with new cases appearing before the courts frequently, don’t get caught out, email us at firstname.lastname@example.org