The rise of freelancing is great news for small businesses. It allows owners to access specialist skills on demand without permanently increasing headcount.

Flexibility is no longer enough for many workers – they want total freedom. Nearly one in three Australians did some kind of freelancing over the past 12 months. In 2014, freelancing was estimated as a $51 billion industry, and millennials increasingly prefer to work as independent contractors.

Big advantage for SMBs

Small businesses are perfectly placed to take advantage of on-demand labour:

• Skills for short-term projects: If you only need temporary access to a specific skill set, such as someone to build your website, a skilled contractor makes more sense than an employee. That way you’re not stuck with extra headcount when the project is complete. Or if you’re not sure how fast your company will grow, using contract workers allows you to quickly scale up or down
• Access to top talent: Hiring contractors can level the playing field with larger competitors. It means a small company can afford top talent without the expense of putting a specialist on a full-time, permanent salary
• Instant teams: Freelancers may also team up with other freelancers, creating networks of highly specialised people. For example, a digital marketing expert may subcontract to a copywriter who regularly works with a couple of graphic designers. This means you get access to a whole network of experts that would have otherwise been difficult to source and recruit

Freelancers are easy to find. On skills marketplaces, such as Upwork and Freelancer.com.au, you can see someone’s past projects and what other businesses thought of them. Many freelancers can also be found through business networks such as LinkedIn, both directly and via referrals.

Contractors and tax

So how does building this type of workforce change your obligations as an employer?

Contractors generally look after their own tax obligations – as long as they provide their ABN, you don’t have to withhold tax. You also don’t have FBT (fringe benefits tax) obligations. However, the ATO advises that you may still have to pay super for individual contractors if the contract is principally for their labour.

Small business accounting software such as QuickBooks Online makes it easy to add contractors to your payroll, along with any associated tax or super obligations. Because it only counts ‘active’ employees – those who have been paid in the last calendar month – it’s easy to stay within your free payroll subscription, as a temporary contractor won’t take up a permanent place.

Freelance workers and contractors represent an exciting opportunity for small businesses. They can get access to the skills they need whenever they need them. It’s also easy to manage payments for contractors with online accounting software.