By definition a Freelancer is a self-employed person who works on behalf of another company and usually shows a high level of qualification & specialization. That is why freelancers are in great demand as external specialists.
Freelancers usually do not employ people, they work alone.
Freelance work is understood as a temporary service to a company, known as the contractor. Payment is made either according to an hourly rate or as a lump sum for a specific project. Only a regular, fixed and steady income is not permitted since this might be seen by the German authority as a bogus self-employment.
A freelancer usually works as an external employee in a company for some months or even years. IT or telecommunication projects normally run for at least some months, in many cases even for some years. During this period, companies regularly cover their demand on highly specialized labor through freelancers.
Freelancers are not subject to social insurance and have to take care of their own insurance cover. In particular this is health insurance, retirement insurance plan and business (freelancer) insurance.
Freelancers work, by legal definition, as sole proprietorship, known in Germany as Einzelunternehmer. This is why a registration in the commercial register, known as Handelsregister, is not necessary.
If you work as a freelancer in the IT or Telecommunications sector, the registration with the tax office (Finanzamt) usually is sufficient. You will receive an official questionnaire on tax registration. Once you fill the form you will be registered, so the tax office knows about you working as a freelancer.
Later on you will receive a tax identification number from the Finanzamt. This number usually you will be asked for in the company you start as a freelancer.
In some cases it will be requiered, that you also register yourself as a business owner, refereed to as Gewerbetreibender. This depends to some high degree in which field you work as a freelancer. As mentioned above, IT- and Telecommincation freelancers usually do not register themselves as a business owner in the specific registry office known as Gewerbeamt.
In case you are not sure if a registry in the Gewerbeamt is necessary, we recomend you to contact the local Gewerbeamt in the city you live in and ask them about their opinion. You can also ask at the tax office, at the Finanzamt, whether you need to register also as a business owner.
Freelancers can charge a high hourly rate depending on the industry and their own specialization grade.
Why does a freelancer get paid a higher hourly rate than an employee? This is because of some factors:
The freelancer might have a specialization that an employee does not have and therefore the contractor is ready to pay a higher rate.
A freelancer has higher costs than an employee for social security, costs for professional accouting, insurance as a freelancer, insurance protection in case of long-term illness or accident.
Financial cushion for times of no contract
These additional costs need to be factored into the freelancer´s hourly rate. Contractors known about this extra expenditures a freelancer has and because of this they are willing to pay higher hourly rates compared to what they pay to an employee.
In the IT and Telecommuincatios sector you will be able to ask for hourly rates of between 60 EUR and 120 EUR, in some cases even more, depending your level of experience and specialization.
Before you ask your contractor for a certain hourly rate, we recommend you to do some research on how much your freelancer colleagues earn and measure yourself based on industry and work experience. You can also ask us since we have specific data available through our network. Always keep your higher fixed costs in mind and factor in tax payments and other unforeseen events. Tax payments can be reduced by having a private retirement plan.
Why companies hire freelancers?
Companies have many reasons why to hire a freelancer. Here we list some of them:
It is much quicker to hire a freelancer compared to an employee
High flexibility in contract cancelation since freelancer contracts are usually done for a three-month period and prolonged if necessary
Hiring a freelancer has lower regulatory implications than hiring an employee
A project manager can decide quickly on whether to hire a freelancer or not, basically depending only on the budget, while a job opening for an employee involves much more decision-takers and specific permits within the company organization
Why companies hire freelancers?
Companies have many reasons why to hire a freelancer. Here we list some of them:
It is much quicker to hire a freelancer compared to an employee
High flexibility in contract cancelation since freelancer contracts are usually done for a three-month period and prolonged if necessary
Hiring a freelancer has lower regulatory implications than hiring an employee
A project manager can decide quickly on whether to hire a freelancer or not, basically depending only on the budget, while a job opening for an employee involves much more decision-takers and specific permits within the company organization