Entrepreneurs – Never Employ Anyone Ever Again

Employ or Hire Freelancers and Contractors?

Employ or Hire Freelancers and Contractors?

Okay – here is a radical business strategy for entrepreneurs that some of you won’t like – and that is that you should not employ anyone. Please, if you disagree, please don’t switch off but take a moment to think about the argument… you can always respond below…

Work with people on a freelance and contractual basis – yes, absolutely, you simply must. You can even have an office or a factory if you must, but never sign a standard UK or European employment contract.

(I accept that employment law in the US is a lot simpler and so this does not apply to the same degree, but employment law is bad in the UK and terrible in continental Europe for the entrepreneurial business).

Here’s how to start. Find a Human Resources training company’s website and look at all the training you’ll need to go through to be allowed to hire people. Here are three I selected from the UK

  1. Employment law, discrimination, grievance, discipline, dismisal, data protection, maternity, paternity rights
  2. Conducting disciplinary investigations, guides to contract law, workplace stress, unions, guides to managing redundancies
  3. Employment law insurance – for when you really mess it up…

Now, let’s compare all this to something we all know about – qualifying to drive a car. Well, in comparison if you thought getting a licence to drive a car was tough, this is 10 times harder and takes 10 time longer to master.

Of course hiring people is different from driving – you are allowed to do it before you pass the exam – but you’ll be sued and screwed if you don’t know and follow the letter of the law. So read through the websites above, the message is clear enough. Either you need to perfect employment law – all aspects, you never know when you’ll need it, or you need to find another way.

And, the worst of it is that the more successful you are then the more people you hire, the more work you need to do to comply with legislation. In other words, as you get bigger, so the burden becomes greater and employment law becomes stricter.

Okay, you might say, I’m in the UK and once my business gets to 50 staff, I’ll just hire an HR (Human Resources) person, won’t I?

Sounds good, but has two problems.

But ask yourself, why should you do this? This is an entirely bureaucratic role required simply because you are a growing company. It will attack your profitability weakening your company.

Hiring an HR person will also create an extra layer between you and your revenue producing team and confusion between your managers and the HR person about who is responsible for employee performance. This is truely dangerous.

Recall that in nearly all start-ups and fast growth businesses the employee costs will be the largest component and will probably make up 80% of your costs and be responsible for 100% of your revenue.

If your managers are going to be responsible for the costs of their division, then they must be responsible for the staffing costs – including the time and monetary costs of any disputes. This can not shift to a central HR person, otherwise you’ll find the the HR person is actually running the business, which is your job or your Managing Director’s job.

Okay, I’ll make it simple for you – follow this link to see employment law training and note the headline quote that:

“100,000 employment tribunals in the UK each year, costing British business more than £250 million”

So, not only do traditional businesses using traditional employment need to hire a full time HR employee – who will deliver no benefit, but you also now face the risk of time consuming tribunals that could result in loss of time and more cash.

Of course, an HR person will be brought in to develop your staff, but hey, this happens when you get to 50 staff and have a successful business. How is it we are sold the idea that the HR person now adds value? Instead your aim should be to stop corporate and legalistic rot setting into your business.

So, you have the costs of the HR person. You have the cost of the tribunals or at least defending yourself and you have the distraction from the goals of the business. If you must go down the employment route then I would recommend that you put aside an additional 10% of employee costs to meet this extra drain on your time and money.

However, how much better would it be if your managers had to learn to live with large pools of freelancers and contractors who could walk out at any moment? They’d become great people managers right? And isn’t that what you want?

If you follow this business strategy then throughout your business growth, your managers would have learned to deal with staff being available and staff not being available. Staff who didn’t want to work for them anymore would just walk, and you would immediately know there was a problem with your manager because there would be a staff shortage.

Also, your managers will have to develop large networks of talented and motivated people they could call upon in an emergence. Many of those people will have developed new skills by working elsewhere which they can regularly bring back to your company (and the best part is that you didn’t pay for the training course, nor the days out of the office to take the course, nor the manager to set up and purchase the course!).

In this scenario, where is the problem now? We don’t need an HR person to ‘develop’ our staff – our managers have demonstrated an ability to do this and our ‘staff’ are actually freelancers and contractors who have an utterly different approach to work – they need to make each project work in order to get the referral for the next piece of work or contract or project. And, usually, they are improving and upgrading their skills on their own time under their own motivation.

If your managers can not develop and keep your staff, and by that I mean freelance and contracting teams, then they have no place acting or being paid as managers of staff.

If HR managers are so good at developing staff as is often claimed, then they should be hired as managers (on a contract) with a revenue or p&l responsibility and given the task of building and holding together a team whilst delivering good profit to the original shareholders and investors.

If the HR managers can not do this, then they have no place in an entrepreneurial growing business and that means you need to develop a different culture – one based on personal motivation and the freelance and contracting concepts.

You need your business managers to grow up in this freelance and contracting climate so that they can cope when the business grows strongly.

You do not, I promise you, want to trade your role as an entrepreneur to become an HR expert. You are an entrepreneur, nothing will kill your entrepreneurial spirit faster than the dead hand of employment law and the endless tribunals that they entail.

Please, if you are a true entrepreneur and dedicated to a life of discovery and adventure – carried out in the business world – then value your freedom and don’t build a traditional business based on the screwed up incentives of the employment contract. If you can avoid this horror trap, you will go a long way to keep the spirit of enterprise alive in your business and what is more, you’ll encourage like-minded people to work with you who also share that spirit.

Give up on the excitement of the enterprise and you will chase away all your best people and nothing will achieve this faster than traditional employment contracts.

Now why on earth would you want to do that?

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Please note, as an entrepreneur I find that diversity of my teams in terms of age, race, religion, disability, criminal record or sexual orientation, is no hinderance to performance. In fact, often your best people may well be people who have suffered some form of discrimination and those who have life handing to them on a plate are lazier.

And if you focus your business on performance then you will allow people to prove themselves based on what they can deliver and not what they look or sound like or how they move. So my recommendation is in no way to avoid the intention of  employment law, but is has every intention of avoiding the spirit destroying effects of employment law on an entrepreneurial business.

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12 Responses to “Entrepreneurs – Never Employ Anyone Ever Again”

  1. Neil Lewis says:

    Okay – have a look at this horror site – it is a legal firm making money out of employees or ex-employees suing their employer.

    http://www.mercurylegal.co.uk/stress_at_work_stress_test.html

    The scary thing about this is that one of their tests for whether your claim might succeed is

    “7. Taking into account the size of your employer and the resources available were there steps that your employer could take to avert the risk of injury (eg other employees to take on additional work)? ”

    Therefore, as you grow you will become vulnerable to claims if you employ people.

    If on the other hand you hire contractors or freelancers then the assumption in is that the person you take on is grown up and able to renegotiate the terms of work if that is what is required.

    The assumption in regards to the employee is that he is a potential victim of a nasty business who is exploiting him (regardless of the fact that the business is paying him, and gives him the option to leave).

    The issue here is not what is right or wrong – but what kind of relationship you want with your teams?

    If you want grown up intelligent partner type relationships – you must choose the freelance and contractor route.

    If you want a bunch of potential victims who are up to speed on their rights (but perhaps not quite so keen on responsibilities) then take on employees.

  2. Neil Lewis says:

    Actually, perhaps this isn’t such a radical idea – take a look at what PWC are saying about the future of work

    http://www.pwc.com/gx/en/managing-tomorrows-people/future-of-work/orange-company.jhtml
    (sorry – put the wrong link here earlier…)

  3. Annabel says:

    Free lancers have a full set of discrimination rights since they are ‘workers’ and some freelance contracts turn out to be employment contract despite what they say.

    After 30 years specialising in this area – it is easier to get a grip, get on top of it, do it right and make sure you have the rights you need as an employer than it is as a buyer of freelance labour.

    Most employers don’t know what they are doing and many advisors offer only ‘compliance advice’ rather than tactical advantage advice.

    The laws are over complicated but you can still get what you thought you paid for if you set things up right and keep focused on the real goal – which is making more money than your staff/stock/overheads cost you!

  4. Neil Lewis says:

    Thanks Annabel – that is worth knowing about freelancers.

    Am I right in thinking that this does not apply if contractors are hired when they either have a limited company or use an umbrella company?

    Also, the key benefit, from the entrepreneurs point of view is the shift in attitude and motivation not just the change in legal structure.

    Regards
    Neil

  5. Scopulus says:

    A reasonable argument in this day and age but it all depend on the type of business and peoples attitude towards the sector.

    It would be every business owners dream not too have too deal with employment law, but sometimes there is no choice, and there is incentives to employing staff. One being, stability. Yes, some people and roles need stability to function properly and responsibly.

    I agree with the notion that you you can either start off with staff and then outsource or the other way round were you start off with freelancers and then take on staff.

  6. Neil Lewis says:

    Hi Scopulus – thanks for your comment.

    I’m interested in why you think having employed staff gives stability?

    Regards
    Neil

  7. Neil

    Thanks, that’s a very thought provoking article and, perhaps surprisingly you might think, as an employment lawyer I do have some sympathy with what you’re suggesting.

    However, as Annabel has said above “workers” can include freelancers and great care needs to be taken with drawing up the contracts that such people work under because they can turn out to be employees after all. Where I think your analysis gets difficult is in the issue of continuity/stability. The freelancer might walk out on you when the going gets tough, or they’ll throw a tantrum over some little issue. You’ll have very little remedy. yes, an employee could do that too (and they do) but I think the fact of employment usually has an effect of making a person feel more permanent. I accept that you can motivate freelancers by offering bonuses/commission etc, but you can do that for employees as well. Who do you propose to incentivize and how? It is clearly beneficial to incentivise your sales force or your fee-earners but how do you motivate your freelance/agency worker receptionist?

    Also, how will your business look to customers if there is a constant turnover of staff (I accept that that probably depends upon the business you’re in) especially in customer facing roles?

    Overall, the tendency in UK employment law is for the workforce to get more flexible and mobile – witness the rise of agency workers (and the implementation of the Agency Workers Directive in 2011 to adapt to that fact).

    To answer your question on umbrella companies, the situation is highly complicated (of course!) but, broadly speaking, you’re right, but it’s not without its risks.

    I hope that helps.

    Kind regards

    Michael Scutt

  8. Neil Lewis says:

    Thanks Michael – I appreciate you taking the time to comment and if you’ve got opinions that you’d like to share on the impact of the Agency Workers Directive etc… we’d be very happy to publish them here.

    Your post gets to the core of the matter. What makes for a stable and motivated work force?

    My experience has been that my freelancers and contractors worked harder and were more committed to the business than some of my full time employees. Why? Simply, they didn’t want to lose a great client who gave them regular business, treated them well, paid them on time, listened to their opinions and invovled them in decision making, invited them to parties and yet let them live their life how they wanted.

    The employees – not all I grant you but a sufficient minority to create massive problems – sat back and said, I’ve got 4 year of service – pay me my redundancy and they hired professionals to press their claims. They had very little incentive to help rescue the business.

    In the end, the business went down. And the effect of the employment status (you owe me money attitude) vs the freelance ‘I don’t want to lose this client – what do we have to do’ has left a very strong impression on me.

    Don’t get me wrong – some employees were very loyal and hardworking – but it was impossible to make the changes we needed without nearly all employees agreeing – which gave huge power to a minority.

    I also believe that those same employees would have behaved differently IF they had been freelancers.

    And that is the crux of it. The incentives were wrong and therefore we got the wrong behaviour.

    To this, I could add a slow decent from what was a highly entrepreneurial business into a more fixed and rigid business as we took on more salaried staff. Personally, as an entrepreneur, this took the fun away for me and it very hard to turn the business back into an entrepreneurial business when our major market disappeared over night.

    Regards
    Neil

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