The year we used associates instead of hiring

We had more work than people for about the fourth quarter running, and I had run out of reasons not to do something about it. Hiring meant a salary I would owe whether the work came in or not, a recruitment process, three months before anyone was useful, and a decision I could not easily reverse. Associates meant paying a day rate for days we actually needed, drawn from people who were already good at the job.

So we went the associate route for a year: four freelancers, all working through their own limited companies, engaged on rolling terms. Some of it worked exactly as advertised. The parts that did not were not the parts I had worried about.

The margin maths, honestly

Start with why it looks attractive, because the arithmetic is real.

Take an employed mid-level consultant on £48,000. Employer National Insurance, pension contributions, holiday, sick pay, equipment, software licences and a share of the office push the true cost well beyond the salary — a rule of thumb of salary plus a quarter to a third is a reasonable starting point for a small firm, so call it £62,000. Assume roughly 220 working days a year after holiday and bank holidays, and realistically 75% of those are billable once you account for admin, business development and the days when the pipeline is thin. That is 165 billable days, so your cost per billable day is about £376.

An associate at £400 a day looks more expensive per day, and is — but only on days you use. Buy 80 days across a year and you have spent £32,000 and carried no cost in the quiet months. The employee costs you £62,000 whether the work arrives or not.

The crossover is the point of the whole exercise. At £400 a day, an associate costs the same as that employee at about 155 days a year. Below that, associates are cheaper. Above it, you are paying a premium for flexibility you are no longer using, and you should be hiring.

That number is worth calculating for your own firm rather than borrowing mine, because it tells you when a temporary arrangement has quietly become a permanent one. Ours crept from 60 days in the first quarter to 140 in the last. We were three months past the crossover before I noticed, and it showed up in the margin before it showed up in any conversation. If you are pricing the work behind it, how you price a monthly retainer is the other half of this sum.

Flexibility is a product you buy with margin. The moment you stop using it, you are just paying more for the same person.

The thing I got most wrong: we did not own the work

This is the one I would go back and fix first, and it has nothing to do with tax.

Under UK copyright law, where an employee creates a work in the course of their employment, the employer is the first owner of the copyright. Where an independent contractor creates it, the contractor is the first owner unless there is a written assignment. Not a purchase order. Not an invoice marked paid. A written assignment of the copyright.

We had none. For roughly eight months, the strategy documents, the templates, the data models and the training materials our associates produced for our clients were, as a matter of law, owned by four freelancers. Everybody was perfectly friendly about it and nobody ever made an issue of it, which is exactly why it went unnoticed. But we were licensing work to clients that we did not own, and had one associate fallen out with us — or been acquired, or gone insolvent — we would have had a genuine problem with material sitting inside client deliverables.

The fix took a paragraph. Every associate agreement now assigns all intellectual property in the work to us on creation, with a waiver of moral rights, and a fallback licence in case any part of the assignment fails. It costs nothing at the point of signing and is close to impossible to retrofit once a relationship has soured.

Status, and the trap that is not IR35

Everyone worries about IR35. For a firm our size that worry is largely misplaced, and the real exposure sits somewhere else.

On off-payroll working, the rules only put the status determination on the client where the client is medium or large. From 6 April 2026 the small company thresholds rose considerably: turnover of £15 million or less and a balance sheet total of £7.5 million or less, with the employee threshold staying at 50, and you need to meet two of the three. HMRC estimated around 14,000 companies would be reclassified as small under the new figures, moving responsibility for status determination back to the contractor's own company. If you are a small company engaging a contractor who works through their own limited company, the IR35 determination is theirs to make and theirs to get wrong. The plain-English version of IR35 covers where the line falls.

The exposure that does sit with you is employment status for rights, which is a separate question with separate tests and no small company exemption at all. A person can be self-employed for tax and a worker for employment rights simultaneously. Worker status brings holiday pay, the national minimum wage and protection from unlawful deductions, and it is claimed at tribunal after the relationship ends, backdated.

What pushes an associate towards worker status is the pattern of the engagement, not what the contract calls it. Personal service with no genuine right to send a substitute. Working set hours you control. Being integrated into the team — a company email address, a place on the internal rota, line management. An expectation of continuing work on both sides. Doing the same thing every week for two years starts to look a great deal like employment regardless of what is on the invoice. Getting employment status right is the piece to read before you sign anyone up.

We tightened three things: a genuine substitution right that we would actually honour, associates using their own equipment and email, and no associate on the internal rota. None of that is decisive on its own. Together they change the picture.

The client relationship problem

The commercial risk I did worry about turned out to be real, though smaller than feared.

An associate who delivers well becomes, in the client's mind, the person who does the work. That is fine while everyone is happy and awkward when the associate decides they would rather bill the client directly at £600 a day than bill you at £400. There is nothing dishonourable about them thinking it; it is the obvious economic move.

Non-solicitation clauses in associate agreements are enforceable in principle but must go no further than protecting a legitimate business interest, and a clause that is too wide is worth nothing at all. Twelve months from the end of the engagement, limited to clients they actually worked on, is the shape that tends to hold. A blanket ban on working anywhere in your sector does not. The same reasoning applies from the other direction when you hire someone who is under covenants of their own.

The more effective protection was not legal. It was making sure no client relationship ran through one associate alone — someone from our permanent team on every account, at every meeting, owning the relationship. That costs a bit of margin and removes the problem almost entirely.

Would I do it again?

Yes, but as a deliberate capacity buffer rather than a way of avoiding a decision.

Associates are genuinely good for peak demand, for skills you need occasionally rather than constantly, and for testing whether a new service line has any legs before committing a salary to it. They are a poor substitute for the hire you know you need and are putting off, because the day rate is higher, the loyalty is thinner and the knowledge walks out at the end of every engagement.

What I would tell anyone starting: work out the crossover day count first and diarise a review the moment you pass it. Get the intellectual property assignment in the agreement before the first day of work. Check your own size against the off-payroll thresholds each year, because they moved in 2026 and they will move again. And keep the engagement genuinely arm's length, not as a paperwork exercise but in how it actually runs — because that is what a tribunal will look at, and by then the relationship will have ended badly, which is why you are there.

Common questions

Is it cheaper to use freelance associates than to hire an employee?

It depends entirely on how many days you use. An employee costs you the full loaded amount whether the work arrives or not, while an associate costs you only the days you buy. Work out your crossover: take the true annual cost of the employee, including employer National Insurance, pension, holiday and equipment, then divide by realistic billable days to get a cost per billable day. Compare that with the associate's day rate to find the number of days at which the two are equal. Below that number associates are cheaper; above it you are paying a premium for flexibility you are no longer using and should be hiring instead.

Who owns the copyright in work done by a freelancer?

The freelancer does, unless there is a written assignment saying otherwise. Under UK copyright law an employer is the first owner of copyright in work created by an employee in the course of their employment, but that rule does not extend to independent contractors. Paying an invoice does not transfer ownership, and neither does a purchase order or a statement of work that is silent on the point. Without an assignment you may hold only an implied licence to use the material for the purpose it was commissioned for, which is a problem if you are supplying it onward to clients. Every associate agreement should assign intellectual property on creation and include a waiver of moral rights.

Do the IR35 rules apply if my company is small?

The off-payroll working rules place the status determination on the client only where the client is medium or large. From 6 April 2026 the small company thresholds increased to turnover of £15 million or less and a balance sheet total of £7.5 million or less, with the employee limit remaining at 50, and only two of the three tests need to be met. A small company engaging a contractor who works through their own limited company does not make the status determination, and the responsibility sits with the contractor's company. HMRC estimated around 14,000 companies would be reclassified as small under the new thresholds. Check your position each year, because crossing a threshold changes who is responsible.

Can a freelance associate claim to be a worker and get holiday pay?

Yes, and it is the more common exposure for small firms than IR35. Employment status for rights is a separate question from tax status, with separate tests and no small company exemption. Worker status carries entitlement to paid holiday, the national minimum wage and protection from unlawful deductions, and claims are usually brought at tribunal after the relationship ends, with backdated holiday pay attached. What matters is how the engagement actually operates rather than what the contract calls it: personal service with no genuine substitution right, hours and methods you control, integration into your team, and an expectation of continuing work all point towards worker status.