The ‘gig economy’ – a labour market made up of contracted or freelance work as well as short-term or temporary jobs – is taking off worldwide and South Africa is no exception.
According to Statistics SA, there were over 4 million temporary workers in South Africa about a year ago, and with the onset of Covid-19, this number has grown exponentially.
The pandemic has made an indelible mark on the way the working world operates, with remote working allowing individuals to cross borders and collaborate with teams in other countries, and in other time zones.
As a result, companies are changing their approach to hiring workers – as it is sometimes more economically sustainable to hire freelancers on a pay-as-you-go basis than to enter into long-term arrangements.
This is especially true in the context of small and medium businesses, for whom freelancers may be the key to managing increasing workloads, instead of navigating the legal and financial process of full-time employment. For freelancers, benefits can include more flexible terms, potentially better rates, and diversity in the kind of work they undertake.
Business owners and SMEs should consider the below processes when working with freelancers: 1) Put it in Writing
You may be tempted to act on good faith and enter into a verbal agreement or come to an understanding via email, but putting things in black and white will go a long way to avoid any misunderstandings, mitigate risk and manage the relationship.
However, putting a policy in place to govern the process doesn’t need to be a complex process – you’ll find plenty of templates online for onepage agreements that specify both your and the contractor’s obligations.
Essential components of any agreement include the scope of work, the contractor’s fee, how many rounds of adjustments to their work are included as part of the fee if any, any relevant deadlines and the fact that the agreement does not constitute full-time employment.
If for the scope of the project, the freelancer requires access to confidential or sensitive company information (like your client list), having the contractor or freelancer sign a non-disclosure agreement is also a good idea, as is an operator data-processing agreement in the case where the freelancer will be processing client information.
2. Resist the Urge to Micromanage
Freelancers, by nature, learn to manage their time and work schedules independently to sustain their livelihoods. The best thing to do as a small business owner is to trust them to do what they’ve been contracted to do.
Some freelancers will tackle your project an hour at a time over the specified time period, while others might opt to pull all-nighters and get the work done in one go.
Flexibility and the ability to be the masters of their own schedules is something freelancers’ value highly, so it’s important to give them the space they need to work in their own way. It’s likely you may not be their only client, so you need to bear in mind that they won’t always be 100 percent focused on your project. Respect that you’re paying for a portion of their time and try not to follow up on progress before the clearly stipulated deadline, unless it’s necessary.
3. Pay Promptly
Finding a freelancer that understands your brand and with whom you can build a long-term relationship, can be indispensable. It makes sense to hire the same independent contractor repeatedly, so be diligent about paying promptly.
Sometimes freelancers will charge 50 percent of their fee upfront as a deposit – which is considered an industry norm, as a way of safeguarding the freelancer in the event of non-payment.
Considering that you will expect that the freelancer delivers the work briefed by the required deadline, it’s fair to extend the same level of respect to them by paying on time and according to their payment terms.
4. Understand the Tax Implications
There are a number of reasons why freelance rates are usually higher than the rate that is paid to a full-time employee. One of them is the fact that freelancers pay 25 percent tax on all their income, as opposed to the varying tax brackets for full-time workers.
If you hire a freelancer, the SA Revenue Service (Sars) requires that you request proof that the freelancer is a tax-paying citizen who submits their own returns – or deduct 25 percent, pay it directly to Sars, and issue the contractor with an iRP5 form at the end of the tax year.
Owners of small businesses usually pay freelancers their full rate (which includes tax) and expect that they pay their own tax when it becomes due, simply because it’s more convenient and requires less paperwork. However, if you opt for this method, make sure to keep a clear record of payments.
*Ben Bierman is a managing director at Business Partners Limited
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