How to become a freelance HR consultant

Taking the plunge and becoming a freelance HR consultant is both exhilarating and terrifying at the same time. It’s a new phase in your career and a step into the unknown all rolled into one.

You’ll be your own boss but will you be able to make enough money to live on? You’ll have much greater flexibility but how will you find your clients? You know your stuff but should you specialise in one particular area? How do you set yourself up in business and what should you charge?

There are lots of questions that demand answers before you make the leap but if you sit down and figure them out in advance, then going freelance will not only be much easier, but it might be the best thing you ever do.

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You don’t necessarily have to have a degree but plenty of consultants do. The type of degree varies with some taking specific ones in HR but others study business management or business administration, for example.

It’s definitely a good idea to have some industry-specific qualifications such as the CIPD Level 5 or Level 7 certificate. You’ll also probably have several years’ experience working as an HR professional in an organisation as well.

Allow yourself plenty of time to plan and prepare

Once you’ve made the decision to go freelance don’t act immediately – you need to plan out your future work situation. Decide upon how you will work, how you will market yourself and if you will specialise in any particular areas.

Make sure you have enough savings or some sort of plan in place for when you go freelance in case you don’t get the income you expect straight away.

Start networking early

Having just said you need to take your time, one thing you can do straight away is start networking. Networking is a fantastic way to get your name out there and let people know what you’re going to be doing.

It’s especially good when you’re just starting out as a freelance HR consultant and finances might be quite tight because many events are either free or very reasonably priced.

Networking will allow you to start building your brand but it will also put you in touch with other like-minded individuals and particularly those who might be able to offer you valuable advice about going freelance.

Know your audience: What kind of businesses outsource HR and why?

When going freelance it’s vital you know who your audience is and how to reach them. According to the CIPD, a third of SMEs outsource some or all of their HR function because they don’t have big HR departments like larger firms do.

They may also require specialist advice from time to time which is outside the scope of their existing HR provision. However, larger organisations tend not to outsource at all because they have sufficient resources in house.

It’s likely it will be the SME market that you target, at least initially, so you need to consider how you will approach them, how best to make contact and present your services to them.

Sole trader, partnership or limited company?

Sole trader is the easiest and quickest option – you simply need to tell HMRC you are freelance and then you’re good to go.

What it means in practice is you and the business are both one and the same from a tax and legal perspective and therefore you’re personally liable for any debts the business incurs. Your income will be any profits you make which is sales minus expenses and you’ll need to declare it annually on your self-assessment tax return.

A partnership is similar to sole trader but it has more than one person so this is a route you’d only consider if you were working with one or more partners. All partners own a percentage of the profits and they must pay tax on that specified percentage amount.

It also allows you to share the legal and tax responsibility with your partners rather than shouldering the burden alone.

If you decide to set up as a limited company you’ll have to register it with Companies House. The business will then be a separate legal entity, completely distinct from you.

The advantage of this is any debts in the business belong to the business and you’re not personally liable for them. The company is owned and controlled by those who own its shares. You can keep all of them for yourself or give them to shareholders e.g. your husband or wife. You can also sell shares to release equity in your business.

As a limited company you’ll be able to take a salary and enjoy dividends. They’re also seen as more professional and you have increased flexibility to raise funds through selling shares. However, you have to file annual accounts and an annual corporation tax return.

Calculate your rate of pay

How long is a piece of string?! You can charge as much or as little as you like, but in reality there are some things you need to take into consideration. A good place to start is to take the target annual salary you would like to earn.

You’ll then need to work out and estimate your expenses as you’ll now have to cover all those once you’re freelance e.g. computer, professional training or subscriptions, insurance, internet, phone and web hosting.

Once you’ve done that, consider how you much time you’ll work each year – how many weeks holiday will you take? How many bank holidays are there in a year? How many sick days will you make an allowance for?

Example:

Target salary £50,000 + Expenses £8,000 = New target salary of £58,000

Total working hours per year based on 40 hour week = 2,080

Holidays = 3 weeks (120 hours)

Bank holidays = 8 (64 hours)

Predicted sick days = 6 (48 hours)

Total working hours – holiday, bank holiday and sick days = 1, 848 billable hours per year

Allow 25% of those to be dedicated to non-billable activities so your total billable hours is 1386

£58,000/1386 = £41.84 per hour approximate rate (You can choose to round up or down)

Strive for a work-life balance

When you go freelance it’s exciting and you want to drive your new-found business forward but it can also suck you in and become all encompassing. You end up spending all your time on work and less and less time taking a break or enjoying a moment with family and friends. 

After a while, you may even start to resent this balance and the way work eats into your home life. It’s therefore important your maintain some kind of work life balance from the start.

Yes, there will be days when you have to work late into the night but make them the exception rather than the rule. Set your day up as if it is a normal working day, even if you’re working from home so work begins at 9am and finishes at 5.30pm.

Avoid working weekends unless you really have to and take regular pauses throughout the day to recharge your batteries.