Employment Contract vs Freelancer Contract
Last updated: February 2025
Quick Comparison
| Aspect | Employment Contract | Freelancer Contract |
|---|---|---|
| Tax treatment | PAYE with employer NI contributions | Self Assessment; freelancer pays own tax and NI |
| Control | Employer directs how, when, and where work is done | Freelancer decides their own working methods |
| Statutory rights | Full employment rights including unfair dismissal | No employment rights; governed by contract terms only |
| Termination | Notice period and fair dismissal process required | Ends per contract terms, typically on project completion |
| Financial risk | Employer bears the financial risk | Freelancer bears own financial risk and can profit or lose |
What Is a Employment Contract?
A legally binding agreement between an employer and employee governed by UK employment law, providing statutory rights and protections.
Key Features
- • Statutory rights including holiday, sick pay, and pension
- • Employer controls how, when, and where work is done
- • PAYE tax deducted at source
- • Notice periods and unfair dismissal protection apply
Best For
- • Businesses needing ongoing, controlled work output
- • Workers wanting job security and benefits
- • Roles requiring integration into the company structure
What Is a Freelancer Contract?
A contract for services between a business and a self-employed individual who operates independently and is responsible for their own tax affairs.
Key Features
- • Freelancer controls how and when work is delivered
- • No statutory employment rights apply
- • Freelancer invoices and handles own tax via Self Assessment
- • Typically project-based or deliverable-focused
Best For
- • Short-term or specialist project work
- • Businesses wanting flexibility without employment obligations
- • Individuals who want to work for multiple clients
When to Use a Employment Contract
Use an employment contract when you need someone integrated into your team long-term, require control over how work is done, and can commit to statutory obligations like pension auto-enrolment and paid leave.
When to Use a Freelancer Contract
Use a freelancer contract for defined projects or specialist skills where you care about the outcome, not the process, and want flexibility without ongoing employment costs.
Which Does Your Business Need?
If you need day-to-day control and a long-term commitment, choose employment. If you need flexible, project-based expertise and the worker operates independently, a freelancer contract is appropriate. Always consider IR35 status.
FAQ
Can a freelancer become an employee under UK law?
Yes. If the working relationship resembles employment regardless of the contract label, HMRC or a tribunal may reclassify the freelancer as an employee, triggering back-taxes and employment rights.
Do I need a written freelancer contract?
While verbal agreements are technically valid, a written contract is strongly recommended to define scope, payment terms, IP ownership, and to evidence the self-employed nature of the relationship for IR35 purposes.
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Get Started FreeThis is guidance for UK businesses, not legal advice. Consult a solicitor for complex matters.
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