Flexible staffing tech platform Coople has conducted a new survey, exploring how UK businesses feel about the recent changes to National Insurance Contributions and minimum wage. Due to rising costs, some businesses may respond by downsizing and working with freelancers. For this reason, the survey also investigates how business leaders feel about hiring freelance staff, including their concerns about misclassification of workers and other legal issues.
Coople asked 500 business owners and senior decision makers at UK SMEs about their staffing decisions and their concerns for the future.
Two thirds of companies shared that they work with freelancers at least some of the time, at 66%. Of those that do not, there is an almost even split between businesses that would consider it, and those that would not. Coople wanted to explore whether uncertainty around the logistics of working with freelancers may influence some businesses, especially with the new regulatory changes.
The top two reasons for working with freelancers were flexibility and gaining access to specific skills, both at 62%. However, a high percentage of businesses also mentioned cost as a factor. The data shows that while UK businesses benefit from working with additional staff who can contribute different skill sets when needed, it is not cost-effective to bring in these staff as a permanent addition to the team. The increase in minimum wage will likely intensify this effect.
Coople wanted to understand how businesses say the new employment regulations introduced in April might affect them. Minimum wage has risen for employees over 21 by 6.7%, and younger people’s wages increased by an even greater percentage (16.3% for workers aged 18-20, and 18% for workers aged 16-17). Employers also need to increase the amount of each employee’s earnings they pay as Class 1 National Insurance contributions from 13.8% to 15%.
79% of all SME leaders said their staffing costs would increase. In more detail, 53% said costs would rise somewhat, and 26% answered that costs would rise significantly. 16% of businesses said they expected costs would go up a little, but only 4% thought costs would not increase at all. This potential strain on business finances might push SMEs towards working with freelancers or other flexible staff as opposed to hiring full-time team members.
Coople found that 14% of businesses said they do not currently work with freelancers, but would consider it. This consideration might indicate that more businesses are thinking about working with freelancers to manage the increase in costs. However, worries about legal issues such as misclassification may be driving business leaders away from hiring freelancers.
The survey asked businesses to share how aware or unaware they were of the potential legal and financial risks that come with hiring freelancers, including compliance with employment laws, liability for unpaid taxes and misclassification. 46% said they were “somewhat aware”, with 28% describing themselves as “very aware”. However, nearly one in ten business leaders said they were unaware, with 5% “somewhat unaware” and 4% “very unaware”.
When businesses misclassify workers and do not provide them with the rights they are entitled to, they can find themselves at risk of financial penalties and legal issues, as well as reputational damage. Two examples of these cases include Uber and courier company Stuart Delivery, both of which lost cases in 2021 and 2023 respectively, for failing to classify their self-employed staff correctly as “workers”.
Coople asked business owners how concerned they would be about these risks, if they were to work with freelancers, and the majority said they would be concerned, at 71%. 41% would be “fairly concerned”, with 30% “very concerned”. 19% were neutral and 10% expressed low or no concern. This suggests that while the appeal of reducing costs is prevalent, businesses are also wary of the complexities and potential legal issues that might come with hiring freelancers.
The study also investigated how much time and resources compliance with employment law requires from businesses. 54% said it costs them “a fair amount”, but for 35%, more than a third, it costs “a great deal”. Only 10% said it does not cost them very much, and only 2% said it costs nothing at all. Regulations that changed earlier this month as well as future upcoming legislative changes could increase the time and cost that it takes businesses to keep up.
Coople asked businesses how complex they find it to correctly calculate and process taxes, social security contributions, and insurance obligations for freelancers. The highest percentage, 43%, said they found it “somewhat complex”, with 23% finding it “a little complex”. However, nearly one in five at 19% find this “very complex”. Only 10% said that it was not complex at all to complete these tasks. This indicates that extra admin work could be a barrier for some businesses that may be considering working with freelancers more.
Overall, the survey data suggests that SMEs are anticipating a significant increase in staffing costs because of regulatory changes, and this financial pressure might drive more businesses to utilise support from freelancers.
However, the survey highlighted some concerns regarding the legal and financial risks associated with working freelancers, particularly around worker misclassification. So whilst some businesses might utilise freelancers more, some remain hesitant because of legal complexities. There are other kinds of flexible support that businesses can access instead of freelancers, for example staffing agencies, which the data revealed some companies are turning to.
While 23% said regulatory changes would not affect their decision to work with freelancers, 31% were unsure, and 17% said they would avoid hiring freelancers. 19% of business leaders said they prefer to work with staffing agencies to minimise risk. Agencies take on the responsibility of handling paperwork, worker classification and NICs for their flexible staff.
Rufus Hood, General Manager UK at Coople, comments:
“Our new survey shows that UK SME leaders expect the increases to minimum wage and National Insurance contributions to cause their costs to rise, with over a quarter expecting costs to rise “significantly”. They are also worried about working with freelancers because of the legal and financial risks they might incur if they were not compliant with employment regulations. We wanted to investigate these topics in order to better understand the impact that these regulatory changes will have, as well as the time and cost that businesses already spend on ensuring they are fully compliant with regulatory requirements.
“While many of the business leaders in our survey expressed concern about working with freelancers, accessing support from agency workers is very different from hiring freelance staff. The agency is responsible for maintaining full compliance with employment regulations, and handles all the paperwork so that businesses can rest easy in the knowledge that their flexible workers are getting a fair deal. Also, National Insurance Contributions for agency staff are paid by their agency. This means that these costs do not contribute to the Employment Allowance which gives eligible businesses a discount to their NIC costs, making flexible support from agencies a cost-effective solution.
“Our platform aims to help businesses solve these problems by giving them a way to connect with talented, flexible workers, so they can build pools of staff that they can turn to whenever they need to scale their team with extra support.”
