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dfd69dd6
Community Member

URGENT HELP - Are UpWork freelancers an employee or a contractor according to UK employment law?

Hello Everyone,

 

I need some urgent help from everyone or someone who knows about employment law and how it relates to using freelancers on UpWork in relation to the UK.  I need an accurate answer to this, rather than vague ones, please.

 

If I hire freelancers through UpWork, and they work regularly for my company (UK limited company), for example, 10-40 hours per week on a shift basis, and let us assume they help my customers (customer service) and do some admin. Are they then considered an employee of my company in terms of the law (UK)?

 

Or does UpWork act like a recruitment agency, so in effect the the "freelancer" has a direct contract with UpWork, and not with my company, and UpWork has a contract with my company to invoice me for the hours done by the freelancer, so in effect its not an employee-employer relationship, but a "contractor" who invoices my company for placing staff or for getting work done. I know a lot of local recruitment agencies in the UK do the latter, however, I do not know if the same rules apply to a service like Upwork.

 

This is an extremely important question for us, and most likely for many UK businesses. We are thinking of expanding our use of UpWork, but it is important that we stay within the UK law with regards to who is an employee and who is a contractor/freelancer. And the answer to this affects things for us.

 

Please help with an answer if you can. Thank you so much.

 

Kind regards,

 

Ryan

17 REPLIES 17
prestonhunter
Community Member

If this is really important to your business, you will need to consult a local attorney who is a specialist in employment law.

 

But for your first (potentially accurate and probably vague) answer from the Forum:

 

Upwork freelancers are freelancers. They are contractors. They are not employees.

 

This a general answer. Does it apply to your situation in your country?@ I seriously doubt any Upwork employee will provide you with a definitive answer. They will advise you to refer to local authorities and experts.

 

Any other answer you receive here is going to be an answer you receive from an anonymous person on an Internet forum. It may be 100% accurate. Or is it?


@Preston H wrote:

If this is really important to your business, you will need to consult a local attorney who is a specialist in employment law.

 

Upwork freelancers are freelancers. They are contractors. They are not employees.

 


 It is not as simple as that. Many freelancers with full time, long term contracts are legally and for tax purposes really employees and both the client and the "freelancer" could get into trouble.

 

However, the advice to ask a local UK lawyer is the correct one.

dfd69dd6
Community Member

Hello Everyone,

 

I am already consulting an employment expert. And I got the conversation going with the employment expert before I started the UpWork thread. So although I agree with that advice, I very shocked that given how big UpWork is, and the number of businesses using the service in the UK, there isn't more knowledge in this area.

 

Thanks.

 

Ryan

Does anyone have a link to a copy of the terms and conditions between UpWork and the Freelancer, my consultant is asking to see this. 

 

Thank you.

petra_r
Community Member

There is no employment relationship between Upwork and the freelancer and all relationships are between Client and Freelancer

 

This is probably what you need

 

If you are planning to use UK staff on contracts that could fall under "Employment" - look here

dfd69dd6
Community Member

Hi Petra,

 

Thank you so much for your help and answer. I have one more area that I need clarification on. 80 per cent of the people I hire are outside of the UK, so based in US/Canada, EU countries and some Asian countries. Is the relationship between those people outside the UK still considered between the Client and the Freelancer?

 

Thanks.

 

Ryan

petra_r
Community Member


@Ryan N wrote:

Thank you so much for your help and answer. I have one more area that I need clarification on. 80 per cent of the people I hire are outside of the UK, so based in US/Canada, EU countries and some Asian countries. Is the relationship between those people outside the UK still considered between the Client and the Freelancer?

 

Thanks.

 

Ryan


 Ryan, sorry, that is something I am not quite clear about. I am just a freelancer on Upwork although I lived in the UK for many years and am familiar with the reasons for you asking the questions you are asking.

 

I believe that at worst, you "get away with" it as far as the UK authorities are concerned, but that is purely the result of some research I did years ago when I still lived in the UK. It is not legal advice.

 

It would get more problematic if you hired UK based freelancers on long term - many hours a week contracts.

 

Petra: I completely agree that in many cases an Upwork freelancer can be LEGALLY considered an employee, regardless of how the Upwork user interface classifies them.

 

The LEGAL definition of an employee is going to vary depending on the laws in effect in any given nation, state, province or local municipality. It may or may not make a difference if the freelancer lives in your country or not. What if you have your business incorporated in another country than your own? It gets very complicated.

 

If a client feels frustrated that Upwork doesn't provide definitive guidelines, I can understand how they feel. But it would be an impossible task to try to codify this for everyone on the Upwork website, and they don't want to open themselves up to liability issues.


@Preston H wrote:

If a client feels frustrated that Upwork doesn't provide definitive guidelines, I can understand how they feel. But it would be an impossible task to try to codify this for everyone on the Upwork website, and they don't want to open themselves up to liability issues.


 Yep. Exactly.

 

The thing is most businesses that use sites like UpWork are small businesses who don't have access to legal expertise. As far as I know, the common knowledge or assumption is that the relationship is with UpWork and "they" are all contractors or freelancers.

 

@ Petra thank you. 

 

Although I am happy with the answer you both gave, I am disappointed with the setup that UpWork have done on this because it puts you as a business in a legal vague area. Given that UpWork is a multi-billion dollar company it I don't think it would be different for them to have T&C's for major markets like the UK, Germany and France. These are huge markets, and putting T&C's for such big markets won't affect them financially at all. 

 

But what do I know, I run a tiny business. 


@Ryan N wrote:

The thing is most businesses that use sites like UpWork are small businesses who don't have access to legal expertise. As far as I know, the common knowledge or assumption is that the relationship is with UpWork and "they" are all contractors or freelancers.

 

Attention, as a client your relationship is with the freelancer, not with Upwork. Upwork is a facilitator providing billing services to the freelancers. So if you hire a freelancer on Upwork, you enter into a business relationship with this person. The question is, at which point this relationship can be considered as a client/contractor agreement and at which point it should be considered as an employment.

 

Rules in this matter vary from one country to another and despite the fact that Upwork is a global platform, I don't think that deciding about this, or providing any legal advice in this field would fall under their prerogatives. 

 

This is typically what a tax advisor, a CPA or equivalent with a knowledge of local labor laws should be able to tell.

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"Where darkness shines like dazzling light"   —William Ashbless
filip_s
Community Member

Upwork isn't an employment agency, so they don't come into the picture.

All contracts on upwork fall under freelancer/contractor where there's a set goal/deliverable, but what you're looking for falls under employment. Generally, if you place demands on a persons time i.e. shifts, work days and set number of hours that falls under employment in most countries. Can you do this on upwork, yes, but you'll be in a gray area legally speaking. You most likely wont have any problem as long as the freelancers you hire are not in the UK, but like the others said, you need to talk to a lawyer and an accountant.

Ryan,

 

I can't see where Upwork falls short on this. Freelancers in UK are, in effect, sole traders. They are responsible for their own tax declarations and are not your employees in any sense of the term - i.e. full-time or part-time. You are not responsible for their healthcare, pension, holidays etc. But you do have to keep records such as invoices. 

 

If you hire someone on Upwork who is from Thailand,for example, you would show this to your accountant or on your tax returns with the relevant invoice, which you can download once the job is complete and paid for. 

ba4225e3
Community Member

It appears that Upwork is acting as a kind of payment gateway and advertising website. 🙂

That's very clever. Also a little naive. Tax officers aren't idiots.

 

Sure, some people who offer services through upwork have a VAT number, and will send invoices. That's how it should be done.

 

And perhaps some clients do register people as employees, in which case the employee will have social rights (minimum wages, payed public holidays, ...) and in most cases that would only be possible for residents of the same country.


So, what if you don't have an invoice, and what if you don't register this person as an employee ? Then you have a serious problem. And there are a bunch of possible situations.

1.  you're just a hobbyist. You just want somebody to help you with a personal matter. In most countries that would still be illegal if there isn't an invoice (maybe acceptable below a certain thresshold), but fortunately for you then very hard to trace, because there are no business accounts involved in the process.

2. you're a small startup who isn't capable of hiring real employees. Well, the question really is, from which account are you going to pay these people ? Will you be paying them from your business account ? Then you SURELY will need an invoice to back this up. If you don't, that's tax fraud. Very easy to trace, and impossible to explain.

 

3. Same as above, but you could decide to just pay this out of your own pocket. In that case, you can't register this as a cost. So, you won't be able to deduct them from your profit, and it's going to be very expensive. In some european countries the total sum of taxes is close to 60%. Because this is a cost for those companies, and not a profit, this actually counts as a 60% DISCOUNT, which you're now missing out on. - And at the end of the ride, it's still kind of illegal but hard to trace (you're back in case 1). It's just painful to miss out on that 60% discount.

 

4. You're doing business from Europe with China, Iran, North Korea, ... Maybe it will take ages before tax officers figure that one out. Language barriers probably can make things very complicated. I can imagine that they won't put much effort if the amount isn't big enough.

 

And sure, it's ok for a business to pay back costs to an individual (e.g. a volunteer for an event) who isn't part of your company, as long as there is no profit involved. Again, subject to all kind of regulations.

 

---

Adding all of this up.

Actually hiring somebody as an employee through upwork is pretty unrealistic. You would bypass upwork immediately. You would already be living in the same country probably. So, after having the interview, you would meet in person to sign contracts. That's just what normal people do.

So, you actually do need an invoice pretty much ALWAYS. So, that should be the default case, and somehow upwork should propose or recommend people to upload these documents, perhaps even generate them for them. And those documents should apply to the most common needs of an invoice. (e.g. it should have the person't address on it, and it should have a big label "INVOICE" at the top. The VAT number and company number should be mentioned. The VAT should be mentioned.)

 

And that's missing. So, upwork enables illegal activities, and that's a crime by itself.

How do other companies address this ?

e.g. paypal:
If you create a business account on paypal, you actually need a VAT number. If you don't have a business account on paypal, you can't accept automatic payments. They kind of make things hard to do illegal activities. And they make it easy to send your invoice along, or even to let paypal generate the invoice for you. Paypal can even calculate the VAT depending on the country of the client. Paypal than automatically detects the VAT rules that apply.

By contrast, I wanted to enter my business information here on upwork 🙂 and it only allowed me to enter my address. It didn't even ask for a VAT number. That's all wrong. And if you think about it, upwork even uses paypal ... so, it wouldn't take much effort.

 

Note: I'm not a bookkeeper, but I'm the founder of 2 companies, and now enough about taxes to have difficulties with all of this. I'm considering adding a default question to my interviews: "do you have a VAT number?"


Bram V wrote:

....

So, you actually do need an invoice pretty much ALWAYS. So, that should be the default case, and somehow upwork should propose or recommend people to upload these documents, perhaps even generate them for them. And those documents should apply to the most common needs of an invoice. (e.g. it should have the person't address on it, and it should have a big label "INVOICE" at the top. The VAT number and company number should be mentioned. The VAT should be mentioned.)


But you do get the invoice, always. The invoice is sent by Upwork on behalf of the freelancer.


Marc C wrote:

Bram V wrote:

....

So, you actually do need an invoice pretty much ALWAYS. So, that should be the default case, and somehow upwork should propose or recommend people to upload these documents, perhaps even generate them for them. And those documents should apply to the most common needs of an invoice. (e.g. it should have the person't address on it, and it should have a big label "INVOICE" at the top. The VAT number and company number should be mentioned. The VAT should be mentioned.)


But you do get the invoice, always. The invoice is sent by Upwork on behalf of the freelancer.


That's not always relevant. Upwork will create an invoice based solely on what the freelancer submits as financial information. If they supply the details of an LLC (or similar) you're ok since you're interacting with an entity/company and that entity is responsible for the rest. The freelancer would be the owner and/or an employee of that. However, if they don't supply this info, the client receives an invoice with just the name of the freelancer, which is useless. It's also not possible to verify these in advance, you need to start the project and hope for the best.

tta192
Community Member

You have to take Upwork out of the picture, and then ask yourself what you should do. Upwork are not part of the contract, they're just facilitating payment. Ideally the freelancer should provide valid invoices from an LLC you're just buying services from. If they don't then things will get complicated especially if both seller and buyer are from the same country.

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