Overview of the European Freelance Industry
By Quentin Debavelaere, Malt
Most people unfamiliar with the topic of freelancing tend to think that the switch to freelance work is forced upon workers who have no alternative in times of crisis, like in 2008 or 2020. Yet this could not be further from the truth! The rise of freelancing in countries across Europe is a result of several factors, but is always fuelled by the power of choice, not constraints.
How can we explain the fact that the number of freelancers has doubled in France in the last 10 years but has stagnated in Germany? Why is it that independent consultants represent 6% to 7% of the workforce in the UK and the Netherlands but only 3% in France or Spain?
Depending on where you work, the scales can tip either way; some countries foster freelance opportunities and mitigate the downsides much better than others.
We believe that these differences can be explained mostly by the dynamism of the economic environment, the maturity of each market when it comes to freelancing and, finally, by the local legal environment.
This article is the result of multiple surveys that Malt has conducted in the last 4 years among its community of freelancers in France, Spain, and Germany. The platform is opening in Belgium and the Netherlands in October 2021; and it hopes to get enough respondents for the 2022 edition of survey (in progress here). Some data have been extracted and analysed in collaboration with Roland Berger and the Boston Consulting Group.
The freelance industry across Europe
In this paper we are studying what we call freelancers that we can defined as independent workers (without employees) delivering professional services (intellectual job) to companies (therefore excluding healthcare or real estate professionals for instance). Here are their main job categories:
- Tech & Data: e.g. Developers, Data Scientists, Webmasters, DevOps, software engineers, etc.
- Arts & Design: e.g. Graphists, Motion & Sound Designers, UX / Web Designers, Art Director;
- Marketing & Com: e.g. Marketing Consultants, Analytics Consultants, Community Managers, Social Media Managers;
- Business Services: e.g. Management Consultants, Sales Representatives, Business Developers, Strategy Consultants, Project Manager, Agile Coaches;
- Support Function: e.g. Finance, HR, Legal;
- Others: e.g. Legal, Purchasing, Operations, Research & other professional activities.
It is a population of about six million individuals in Europe.
When we look at the picture market by market, we can see that the UK and Italy have among the highest population of freelancers
Out of the total number of the freelancers, 2.8 million are working in the digital field. The total number of individuals working in digital being ~13 million individuals (according to Eurostat), we can conclude than ¼ of the digital talents in Europe are freelancing.
“We estimate that in Europe, ¼ of the digital talents are freelancing”
If we look back at the different market sizes, however this time in terms of value, we now see that France and the Netherlands come respectively in 3rd and 4th position ahead of Italy. As we will see later this due to higher daily rates in those countries, a consequence of the higher unemployment level of Italy. The situation of Spain is similar, it ranks at the 5th place in terms of numbers of freelancers but only 7th in market value.
Put of these € 355Bn, more than half of the market represents the digital freelancers (Marketing & com, Arts & Design, Tech & Data)
Three factors are influencing the growth of freelancing markets:
1. Economic environment
When the economy is running smoothly, several factors play in favour of growth in the freelancing market. The first factor is evident: as more and more people choose to become freelancers, they tend to do so when conditions are favourable. It is unlikely that someone will quit a full-time contract and jump into the unknown in the middle of a crisis. The growth of GDP is a strong driver for the growth of the freelancer population.
Another element to take into account is the unemployment level, which will have a direct impact on the average prices of freelancers. While the average salaries of full-time employees are not subject to strong variations (they are aligned with inflation), the daily rate for freelancers can vary significantly depending on one simple rule: supply and demand. As in any free market, prices go up and down according to the scarcity of the resource.
For example, in Spain, typical salaries are 25% lower than in France for a similar job (net salaries i.e. adjusted for tax levels), while freelancers’ daily rates are 50% lower than in France! This is most probably due to a higher level of unemployment (16.3% vs 8.9% in France). On the other hand, in Germany, freelancers’ daily rates are 30% higher than in France, whereas full-time employees are paid 25% more.
The COVID crisis has served as an excellent indicator of how behaviour can change during economic turbulence. Although freelancers’ confidence in the future remains high (80% remain confident about their outlook), the number of freelancers looking for a full-time job has increased since the crisis erupted.
- In 2019, 90% of freelancers in France replied that they did not want to go back to full-time employment
- At the end of 2020, that number fell to 84%
For the first time in the history of Malt, we have also noticed a decline in freelancers’ daily rates. Although it was only a marginal decrease (and prices are now back to their pre-crisis level), it can be explained quite simply: at the peak of the crisis in Q2 and Q3 2020, many clients froze their projects with large IT consulting companies. Those companies suddenly found themselves with many consultants on their payroll with no projects to give them. They had no other choice than to offer huge discounts to occupy their workforce, thus pushing prices down across the entire market.
2. Maturity of the freelance economy
a. Maturity of clients’ attitudes towards freelancing
Client attitude towards freelancing is harder to measure and can only be truly evaluated by interviewing business leaders, such as IT project managers, CIOs, procurement directors and so on. Having met many of these leaders, I am convinced that there are significant differences from one market to the next. Their attitude can be evaluated with their answers to two questions:
- Are you already working with freelancers in IT?
- If not, are you aware that many of the workers sent by agencies and consulting companies are freelancers?
The answers show that in Spain, large companies are usually not aware that they already work with dozens of independent consultants. In these cases, the freelancers are ‘invisible’ or hidden behind agencies and consulting firms, which themselves contract freelancers who are then, in turn, contracted to the end customers. There are more than 600k4 freelancers in Spain and they do in fact work for large companies, as our recent study shows (link in French).
Client maturity is another strong driver of growth. With more and more companies now willing to work with freelancers, an increasing number of traditional consultants are also choosing this path. They often work on the same projects as freelancers, in the same teams and for a similar daily rate. However, freelancers don’t have the structural costs of a consulting firm. They also enjoy lower tax rates (social security, income tax). For a similar daily rate, we have calculated that in France, a freelancer will earn a net salary that is 2x higher than that of an employee. That being said, the actual difference is slightly less stark as freelancers tend to invoice a lower price than consulting companies for a similar level of experience, and they also have some additional costs once they receive their net salary (insurance, hardware, accounting, office rates…).
This is a virtuous circle. If clients start to embrace working directly with freelancers, they are helping employee consultants to take a “leap of faith” and switch to becoming independent. Then, as more and more senior experts become freelancers on the market, more and more companies start accepting the new reality, thus sustaining this feedback loop.
b. Maturity of workers’ attitudes towards freelancing
Being a freelancer means being an entrepreneur. It’s being a CFO, COO, CSO and CEO all at the same time. Not everyone is made for entrepreneurship. It can be scary not knowing how much will be going into your bank account at the end of the month. Obviously, a market already packed with freelancers will have less space for growth. This is the case in the UK and the Netherlands for instance, with a respective 6.3% and 7.2%3 of freelancers among the active population. In France and Spain in comparison, freelancers represent “only” 3.3% and 3.6% of the population. That’s half the share of more mature freelance economies.
This “starting point” will strongly influence the potential growth of the market. Countries like France, Spain and Germany have more “space” for the freelancing market to grow.
As well as very different market dynamics, we also observe that the typical freelancer is quite different from one country to the next. While choice is always a strong driver in convincing people to switch from full time employment to freelancing, differences remain in what freelancers wish to choose: interesting projects? more money? work from home?
As we can see in Germany, the readiness of large companies to work with freelancers, along with the very positive economic situation (lower unemployment, higher daily freelance rates) has attracted more senior/expert freelancers. At Malt we call them “Enterprise freelancers” and, as we said previously, if there are more of them in a market, they will in turn convince increasing numbers of companies to switch towards freelancing. We find more of these “Enterprise freelancers” in Germany. Here are some of their characteristics:
They are prepared to work at the client’s office almost full-time:
They are more experienced, having worked for an average of 9 years as freelancers:
They become/remain freelancers in order to choose their projects (80%) and make more money (56%) rather than be able to manage their agendas (79%):
Germany is a market of “enterprise freelancers”, fuelling the growth of the market by convincing more and more large companies to mix their sources of recruitment and include freelancers. But this virtuous circle could very well be in danger due to an increasingly less favourable legal environment.
3. Legal environment
While it is true that countries are starting to address the issue of precarity in the gig economy by setting up frameworks to protect the workers of Deliveroo, Glovo and the like, they differ in their approach to addressing the talent economy.
This is the third factor that can explain the growth of the market in different countries:
a. Is it easy for freelancers to start working and invoice their clients? And is it attractive financially?
b. Is it easy for clients to work with freelancers?
(a) In this respect, France is a European champion. Many consider France to be a very complex country when it comes to administration or labour law. While it is true that freelancers have many different options for invoicing their clients (SA, SARL, EI, MDA, Agessa, Portage salarial, micro-enterprise. etc…), France introduced a much-simplified status in 2011: the Micro-enterprise (auto-enterprise) allows a freelancer to get a registration number in less than 48h, and to invoice customers with limited taxation up to 70,000€ per year. It is indisputable that this status fuelled the growth of the talent economy in France. Around 50% of freelancers on Malt have chosen this model.
Freelancers in the UK and Spain also benefit from relatively attractive legal frameworks. It is possible to invoice customers in the UK under one’s personal name, with no need for registration (although fiscality is less attractive in this case), while in Spain, freelancers generally choose the Autonomo status. While this status is very simple to obtain, it has one major drawback: the social security charges have a minimum amount of 287€ a month, making the start of your career as a freelancer potentially riskier since you will have to pay this amount even if your billings are low.
(b) On the client side, once again France seems to be a relatively attractive environment. While the labour law system is one of the most complex in the world (the “code du travail” is approximately 500 pages long), the risks of fake freelancing (reclassification, improper subcontracting, illegal supply of workers) are very, very slight. Successive governments in recent years have all been in favour of expanding the talent economy. Recently, the then-minister for work (Muriel Penicaud) even expressed her wish to clarify the “rules” or good practices that companies should follow to avoid any risks. Unfortunately, such guidelines don’t exist today and companies feel they are living with a sword of Damocles above their head… However, the real risk is minimal: the only companies at risk are those clearly abusing the status of freelancers. We have never heard of a single case at Malt in the past 7 years.
This is clearly not the case of Germany and the UK, where recent legal measures are impacting the growth of the talent economy.
- In Germany the “rules and regulations” are the second most important challenge faced by independent consultants when it comes to developing their activity. You cannot meet any client of substantial size (above 250 employees) without having to deal with the Scheinselbstständigkeit. The regulation in Germany has increased considerably in recent years to prosecute “fake freelancers” on the grounds of fiscal evasion.
- In the UK, a similar issue is looming with the dreaded IR35 law. As in Germany, the IR35 pushed by the HMRC (social security) is aimed at increasing taxes (or invoice penalties to be precise). If a relationship between a client and a freelancer is determined to be fake freelancing, then employee/employer taxes will be fined to the client. Many organisations in the UK are protesting against this law for its lack of clarity (the rules don’t seem to be crystal clear, forcing companies to stop their missions with independent contractors for fear of legal retribution). The law, originally scheduled for 2020, has been pushed back by a year to avoid putting too much pressure on the freelancing economy in the middle of the worst economic crisis since 1929…
- Spain is in a better situation. While the number of “falso autonomo” cases have increased sharply in recent years, the talent economy has not been impacted by the government’s fight against precarity, which mainly targets the gig economy.
These legislative factors explain why the French and Spanish freelance communities are growing faster than the more mature German market. Should the IR35 law pass in the UK, we also believe that this will cause a stagnation of a market that grew ~15% in the last 5 years.
Europe’s Most Fertile Ground for Freelancers
If we combine the three determining factors discussed above (economic strength, market attitude and local legislation), it would appear that of the countries we’ve compared, France emerges as the most fertile ground for freelancers. The El Dorado of European freelancing, as it were.
The French economy, if not booming, is robust. There is also plenty of room for growth in the freelance market there. Finally, the legal frameworks in place make it easy to become (and remain) a freelancer in France. What’s more, unlike in the more established freelance economies like the UK and Germany, there are no nasty legal surprises looming on the horizon.
For a country infamous for administrative rigidity, that might appear rather surprising to some. But for a nation that prides itself on a healthy work/life balance, it may well be perfectly logical after all.
- France, Germany, Spain, Italy, Belgium, Netherlands, UK, Switzerland, Denmark, Finland, Sweden, Norway. Sources: Eurostat Independent Professionals without employees, Roland Berger Freelancing Market Study 2021
- Malt internal data, comparing prices of freelancers for intermediate level backend developers, frontend developers, graphic designers, mobile developers, UX designers
- https://countryeconomy.com and https://www.averagesalarysurvey.com/software-developer
The opinions and views expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of Reshaping Work.