Freelancer or an employee – does it even matter?

The answer to this question is very straightforward – yes. Now, you may ask “Why?”. Simply, because based on the type of the relationship, the parties may have different rights and obligations. When we are talking about employer-employee relationship, we need to have a look on the labor law, while in case of or company-freelancer relationship, the commercial law will be relevant.

As you may know, law regulating these matters differs from country to country. Some of them like UK or Nordic states are more progressive, or benevolent (depending on your view), while others like the countries of Central and South Europe, have more traditional and rigid approach. This should be always considered when deciding on what is more favorable or feasible. Anyway, there are certain principles, which are applicable around the whole Europe. Let’s focus on them more.

Generally, people have an impression that freelancer status gives them more freedom and is less regulated. This can be a true, but as in any kind of relationship, it is the utmost importance to look into its content - what is it really about and how it is fulfilled. As we use to say, many things can be written on paper, but the real content always decides. In the end you may figure out that the work is not performed by a freelancer, but by a “hidden employee”. And then there is a problem…

The flexibility of company-freelancer relationship may be very attractive and certainly, in some cases, can be also very useful. But it needs to be understood, what such flexibility means. Commercial law gives you space, what you can agree in the contract with the freelancer, but it also expects you to behave as in a commercial relationship. Freelancer cannot expect any “paid holidays”, or meal vouchers, or reimbursement of costs for “business trips”, or any sort of social/health insurance protection. If the company engages the freelancer, then the result of freelancer’s work is decisive, not the way, how it was achieved. The company can define and precise some rules for freelancer’s work but cannot organize it and control it in the same extent as it is doing with its own employees.

If you find out that the freelancer does the same job as a regular employee, under the comparable “commercial” conditions, in the same manner, with the same tools provided fully by the company, under the guidance and organization of the company, while all his/her steps are closely watched and regulated by the company’s employees, then, probably, we cannot talk about real freelancer. The law does not require all mentioned characteristics to be fulfilled to conclude that there is no company-freelancer relationship, but employment relationship among parties. This is even more pronounced when freelancer is acting as a single person having sort of trade license and the company is his/her sole client, for which he/she is performing tasks.

You may ask, where is the problem, if both parties agree to perform the work in freelancer mode and do not want to establish employment relationship. Well, unfortunately, it is not always important, what the parties want, but what the law says. And then, it is not relevant, if you like it or not. You need to follow it. Described situation can be potentially very dangerous for the company – from legal, tax, business, and PR perspective. Especially, if this is a long-termed practice in the company. Some of the risks can be limited by proper contract formulation, but they cannot be completely excluded, if there is not correct set-up of the relationship in practice. You may say that “others are doing the same”, but this is not really a valid argument. You never know all the details of concrete situation you are referring to and you may not understand all things that remain hidden under the “corporate curtains”.

Of course, we simplified the description here, because it may be difficult to explain and understand all the nuances of labor law. Anyway, the message is clear. Freelancer way of work can be beneficial for both parties and is legally allowed. However, it is necessary to always consider how it is performed in reality. We cannot blindly rely on what we heard about how simple and advantageous it is, without knowing details. After assessment it may turn out that a freelancer is an employee and this is not a desired scenario for any of the parties.