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:
• Social security: Freelancers pay this independently.
• Working hours: Freelancers can usually arrange their own time — regardless of company working hours.
• Protection against dismissal: Does not apply to freelancers. All regulations in the event of termination are set out in an individual contract.
• Priorities: As a client, you must be aware that you are not always the first priority with a freelancer. Especially if the freelancer has several clients at the same time.
Using freelancers: benefits for employers
Do you have a specific project for which you would like to hire a freelancer? You can get the following benefits from a collaboration:
• Project planning: Freelancers are particularly useful when you need additional staff or specialized skills for large and significant projects. External freelancers can join the team for the duration of the project and contribute to the success of the project exactly during this period of time.
• Cost efficiency: Since freelancers are not employed, you will not have to pay social security contributions, as is usual for permanent employees. As a result, a freelancer can be more cost-effective for your company than a permanent employee.
• Flexibility: In the case of freelancing, there is generally no right to a notice period, which allows the cooperation to be terminated at short notice.
As an employer, you can benefit from freelancers quickly familiarizing themselves with new fields of activity and achieving high productivity within a short period of time. In addition, they often have a wide range of experience due to their involvement in various projects. Freelancers are experts in a specific area, which you can use for clearly defined tasks within your project. A higher fee shouldn't scare you off, as it can certainly pay off. Due to strong competition among freelancers, you can also expect a high level of performance.
If the freelancer does not work directly in your company, but with its own infrastructure, there is a significant cost advantage for you here, as you do not have to provide a computer, telephone or office space.
Using freelancers: Disadvantages for employers
Since every medal is known to have two sides, working with freelancers can also have disadvantages for you as a client:
• Availability: Freelancers usually work for various clients. This may mean that their availability is not automatically guaranteed for your order. It may be that an already proven freelancer has no capacity for the next project and you will therefore have to resort to an alternative.
• Training: Although every freelancer is an expert in their field, the working methods between companies sometimes vary greatly. Therefore, every time you work with a new freelancer, you must explain how you work again in order to achieve an optimal project result.
• Team spirit: Freelancers who come and go regularly are often not fully integrated into your team. This can influence the working environment and lead to a lack of a strong sense of belonging. You could also use resources that are invested in integrating freelancers to strengthen the loyalty of your permanent employees.
A certain amount of trust is essential for successful collaboration with freelancers, as they often get comprehensive insights into your company. A confidentiality clause in the cooperation agreement provides security here.
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 whether to integrate new team members into your company through freelancers or permanent positions should be decided as needed. In the long term, the combination of freelancers and permanent employees could be the ideal solution. If you decide to regularly use freelancers in your company, efficient collaboration is crucial. Our ZEP software allows you to simplify this collaboration by working with your freelancers in one tool. With the Additional module freelancers You can pay out the recorded time spent directly as credit notes.
ZEP offers you a wide range of features that are tailored to the needs of working with freelancers. This includes marking employees as freelancers and the option of choosing whether a freelancer should issue invoices or receive credit notes. The option of storing internal hourly and daily rates per employee and also adapting them to a project-specific basis gives you maximum flexibility when it comes to fee planning. In addition, ZEP provides a comprehensive evaluation, which gives you an overview of credit notes that have already been created.
The credit process makes billing much easier for your accounting department. By paying out recorded time expenses directly, you save yourself the complex invoicing process. And the crediting process is as simple as this:
1. Preparation & storage of credit notes: Based on the time bookings entered, you can easily and quickly create credit notes for your freelancers. These are stored securely and clearly in ZEP.
2nd VAT & currency configuration: Adjust the VAT and currency for each credit note individually to meet legal requirements and the needs of your freelancers.
3rd Automatic numbering: ZEP enables the automatic numbering of credit notes in a configurable format, which makes administration and tracking much easier for you.
With ZEP, you make collaboration with freelancers transparent, efficient and legally secure — so that you can concentrate on what's important: the success of your projects.
