Executive Summary
- Over half of freelancers (55%) believe their business costs to increase in the next 12 months
- Freelancers are working slightly more compared to last quarter, with spare capacity increasing from 3.2 weeks in Q4 2022 to 3.0 weeks this quarter
- Freelancers expect an average decrease of 12% in their day rates over the next 12 months.
Freelancers are still extremely concerned about their business costs rising in the next 12 months, as the cost of living crisis shows no signs of abating.
Similarly, despite working slightly more compared to last quarter, freelancers are now expecting an average decrease to their day rates over the next year; with the sector understandably concerned about a looming recession in the UK.
Concerningly, both freelancers’ confidence in their own businesses and the UK economy has decreased compared to last quarter.
Freelancers’ confidence in their businesses and the UK economy
Table indicates outlook for the next 12 months.
Confidence in the UK economy
for the next 12 months
Confidence in their business
for the next 12 months
Top factors lowering business
performance in Q4 2022
Top factors enhancing business
performance in Q4 2022
Freelancers were asked to rate the importance of 15 different factors affecting the performance of their business in categories ranging from significantly positive and slightly positive, to no impact, slightly negative and significantly negative impact.
About IPSE
About PeoplePerHour
PeoplePerHour is the UK’s leading freelance marketplace. Founded in 2007 the site boasts over 2m users across 150+ countries, and has paid out in excess of £100m to freelancers since. Since its inception PeoplePerHour has become an invaluable resource for small businesses in the UK and outside, allowing them to hire expert talent as and when needed, 'on-demand' thereby staying lean and flexible while they grow. The company's mission is to empower people worldwide to live their work dream, building their business from the ground up and becoming financially and professionally independent.
With inflationary pressures showing little signs of abating, it could be expected that freelancers’ confidence in their own businesses would be declining. However, our findings for Q1 2023 now reveals that freelancers’ confidence in their own businesses for the next three months has countered this notion and slightly increased from -8.6 in Q4 2022 to -2.4 this quarter. This follows a similar increase reported between Q3 2022 and Q4 2022 (increasing from -17.7 in Q3 2022 to -8.6 in Q4 2022).
Looking at freelancers’ confidence in more details reveals that there was a significant increase for SOC3 associate professional and technical freelancers. Indeed, the confidence for this group increased from -10.8 in Q4 2022 to 15.6 in Q1 2023 – now representing the highest indices score for SOC3 associate professional and technical freelancers since Q1 2016.
On the other hand, both SOC1 managerial freelancers and SOC2 professional freelancers reported decreases in confidence, falling from 0.6 in Q4 2022 to -14.6 in Q1 2023 and from -12.4 in Q4 2022 to -13.6 this quarter respectively.
Overall, freelancers’ confidence in their own businesses for the next three months has increased since Q4 2022 – largely driven by a significant increase to SOC3 associate professional and technical freelancers – although overall confidence remains in negative territory.
Freelancer confidence indices for their businesses over the next three months
Freelancers were asked to identify their confidence levels for future relative to current performance in one of five categories comprising: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index is created by scoring each of five answers with 100, 50, 0, -50 and -100 respectively and then taking the weighted average score for the sample. The weighted average is based on the relative size of freelancers in the labour market in 2022.
Freelancer business confidence for the next 12 months has decreased since Q4 2022, decreasing from -6.0 in Q4 2022 to -10.1 this quarter – driven by decreases to both SOC1 managerial freelancers and SO2 professional freelancers (falling from 6.8 in Q4 2022 to -22.9 in Q1 2023 and from -21.1 in Q4 2022 to -23.2 this quarter respectively). This represents the lowest indices score for SO1 managerial freelancers since Q1 2021.
On the other hand, SOC3 associate professional and technical freelancers reported an increase in their business confidence for the next 12 months, increasing from 0.0 in Q4 2022 to 10.0 this quarter.
Overall, our findings reveal that business confidence for the next 12 months is slightly more favourable than business confidence for the next three months, with a significant decrease in confidence for SOC1 managerial freelancers driving longer-term confidence down.
Freelancer confidence indices for their businesses over the next 12 months
Freelancers were asked to identify their confidence levels for future relative to current performance in one of five categories comprising: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index is created by scoring each of five answers with 100, 50, 0, -50 and -100 respectively and then taking the weighted average score for the sample. The weighted average is based on the relative size of freelancers in the labour market in 2022.
Top factors which lower freelancers’ business performance
Freelancers were asked to rate the importance of 15 factors which can affect the performance of their business in categories from significantly positive, slightly positive, no impact, slightly negative, significantly negative.
We now move on to explore the factors that freelancers identify as having an influence on their business performance. In terms of negative determinations, freelancers continue to cite the same three factors lowering their business performance.
As was the case with our findings from Q4 2022, freelancers continue to cite the state of the UK economy as the top factor negatively affecting freelancers’ business performance, with 73.6 per cent of freelancers citing this factor – which can be largely attributed to the continuing inflationary pressures experienced across the UK.
Interestingly, it was just SOC3 associate professional and technical freelancers that cited state of the UK economy as the greatest negative determinant on their freelancer business performance (72.1%), with both SOC1 managerial and SOC2 professional freelancers instead citing government tax policy relating to freelancing (79.2% and 80.2% respectively).
As a result, government tax policy relating to freelancing continues to be the second most selected factor for freelancers, with 66.3 per cent citing this factor in Q1 2023.
Government regulation relating to hiring freelancers also continues to be considered the third greatest factor negatively affecting freelance businesses (63.9%), largely driven by SOC1 managerial freelancers citing this as their second greatest negative determinant (79.2%).
Overall, with macroeconomic factors continuing to impact the sector, it is perhaps unsurprising that the state of the UK economy continues to be reported as the most detrimental factor for freelance businesses. It’s also clear that for those impacted by IR35 - SOC1 managerial and SOC2 professional freelancers – government tax policy relating to freelancing continues to be the greatest factor lowering business performance.
Now looking at the factors which positively enhance freelancers’ business performance, this quarter reveals that whilst all the negative factors were external, the factors enhancing freelancers’ business performance remain largely internal.
Brand value and reputation in the market continues to be the top factor positively enhancing freelancers’ business performance, with 68.2 per cent of freelancers citing this. This is driven by the fact that all three SOC groups ranked this as their top enhancing factor.
Interestingly, collaboration with other freelancers/businesses to secure more work is now the second most positively enhancing factor on freelancers’ business performance in Q1 2023, with 56.6 per cent of freelancers citing this factor this quarter.
Innovation in terms of the services offered to clients is now the third most positively enhancing factor on freelancers’ business performance, cited by 49.6 per cent of freelancers in Q1 2023.
Overall, freelancers continue to rely on brand value and reputation in the market to enhance their business performance.
Top factors which enhance freelancers’ business performance
Freelancers were asked to rate the importance of 15 factors which can affect the performance of their business in categories from significantly positive, slightly positive, no impact, slightly negative, significantly negative.
Freelancers’ quarterly confidence in the UK economy for the next three months has remained relatively stable compared to Q4 2022, although remains in negative territory (falling slightly from -22.4 in Q4 2022 to -24.5 in Q1 2023).
This is driven by a significant decrease in confidence reported by SOC1 managerial freelancers (decreasing from -6.0 in Q4 2022 to -37.5 in Q1 2023) being offset by a significant increase in confidence reported by SOC3 associate professional and technical freelancers (increasing from -22.1 in Q4 2022 to -7.4 this quarter).
In addition, SOC2 professional freelancers reported that their confidence in the UK economy for the next three months had remained relatively stable, falling slightly from -33.7 in Q4 2022 to -34.1 this quarter.
Overall, freelancer confidence in the UK economy over the next three months has remained relatively stable compared to Q4 2022 and still remains in negative territory.
Freelancer confidence indices for the UK economy over the next three months
Freelancers were asked to identify their confidence levels for future relative to current performance in one of 5 categories comprising: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index is created by scoring each of five answers with 100, 50, 0, -50 and -100 respectively and then taking the weighted average score for the sample. The weighted average is based on the relative size of freelancers in the labour market in 2022.
Now looking at freelancers’ confidence in the UK economy for the next 12 months reveals a slight decrease in confidence, falling from -25.1 in Q4 2022 to -28.7 this quarter and driven by a significant decrease in confidence reported by SOC1 managerial freelancers (falling from -4.8 in Q4 2022 to -35.4 this quarter).
On the other hand, both SOC2 professional freelancers and SOC3 associate professional and technical freelancers reported small increases in their confidence for the UK economy over the next 12 months (increasing from -39.9 in Q4 2022 to -39.0 in Q1 2023 and from -24.0 in Q4 2022 to -14.9 this quarter respectively).
Overall, freelancers’ confidence in the UK economy for the next 12 months has fallen slightly due to a significant decline in confidence from SOC1 managerial freelancers countering small increases in confidence reported by SOC2 professional and SOC3 associate professional and technical freelancers.
Freelancer confidence indices for the UK economy over the next 12 months
Freelancers were asked to identify their confidence levels for future relative to current performance in one of five categories comprising: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index is created by scoring each of five answers with 100, 50, 0, -50 and -100 respectively and then taking the weighted average score for the sample. The weighted average is based on the relative size of freelancers in the labour market in 2022.
Now that we have the data on day rates for Q1 2023, we can unfortunately rule our findings on day rates for Q4 2022 as an anomalous result. Anecdotally, both IPSE and PeoplePerHour had heard that this significant increase in day rates didn't entirely match with what freelancers were seeing in the market and this appears to be the case. We are, however, still presenting these findings as it's what was reported to us but any comparison between our findings for Q1 2023 will now be made with Q3 2022 instead of Q4 2022.
This quarter, the average day rate charged by freelancers over the last three months stands at £516, which closely aligns with our findings from Q3 2022 (£503).
Looking at the SOC groups more closely and comparing the findings to Q3 2022 reveals that both SOC2 professional and SOC3 associate professional and technical freelancers have reported small increases in the average day rates charged (increasing from £608 in Q3 2022 to £640 in Q1 2023 and from £265 in Q3 2022 to £336 this quarter respectively).
On the other hand, SOC1 managerial freelancers reported a small decrease in the average day rates charged compared to Q3 2022, decreasing from £726 in Q3 2022 to £621 this quarter.
Overall, it is unfortunately clear that our findings for Q4 2022 were an anomalous result and day rates have instead remained relatively stable compared to our findings from Q3 2022.
Average day rates charged by freelancers over the last three months
The weighted average is based on the relative size of freelancers in the labour market in 2022. *Q4 2022 can be considered an anomalous result.
In terms of quantifying the expected change in day rates, 31 per cent of freelancers now expect an increase in their average day rates for the next 12 months which represents a significant decrease compared to our findings from Q4 2022, where 76 per cent of freelancers expected an increase in their average day rates for the next 12 months.
Just over two-fifths of freelancers (42%) forecast an increase in their expected day rates for the next 12 months whilst 27 per cent and 21 per cent of SOC2 professional and SOC1 managerial freelancers expect an increase in their day rates respectively.
Half of all freelancers (50%) expect no change in their day rates over the next 12 months whilst 12 per cent expect a decrease.
Interestingly, 20 per cent of SOC2 professional freelancers forecast a decrease to their day rate over the next 12 months.
When asked to quantify the expected change to their day rates, freelancers expect their day rates to increase by 12 per cent (compared to 17.2 per cent in Q4 2022).
Overall, the number of freelancers expecting an increase to their day rate over the next 12 months has fallen compared to Q4 2022, with freelancers also now forecasting a lower expected change compared to the last quarter.
Freelancers’ spare capacity has decreased slightly since Q4 2022, decreasing from 3.2 weeks without work per quarter in Q4 2022 to 3.0 weeks this quarter.
This small decrease in freelancers’ spare capacity is driven by a decrease in the spare capacity of SOC3 associate professional and technical freelancers, decreasing from 3.7 weeks without work in Q4 2022 to 2.9 weeks this quarter.
On the other hand, SOC2 professional freelancers reported a small increase in their spare capacity, increasing from 2.6 weeks without work in Q4 2022 to 3.0 weeks in Q1 2023.
Similarly, SOC1 managerial freelancers’ spare capacity has fallen only slightly since Q4 2022, decreasing from 3.3 weeks in Q4 2022 to 3.2 weeks this quarter.
Overall, freelancers are now working slightly more compared to last quarter, with the average number of weeks without work now standing at 3.0 weeks for Q1 2023.
Freelancers’ spare capacity: Number of weeks not working per quarter
The weighted average is based on the relative size of freelancers in the labour market in 2022.
Now that we have the data on quarterly earnings for Q1 2023, we can unfortunately rule our findings on quarterly earnings for Q4 2022 as an anomalous result. Anecdotally, both IPSE and PeoplePerHour had heard that this significant increase in quarterly earnings didn't entirely match with what freelancers were seeing in the market and this appears to be the case. We are, however, still presenting these findings as it's what was reported to us but any comparison between our findings for Q1 2023 will now be made with Q3 2022 instead of Q4 2022.
This quarter, average quarterly earnings over the last three months stands at £25,577, which closely aligns with our findings from Q3 2022 (£25,887).
This is largely driven by increases to SOC2 professional and SOC3 associate professional and technical freelancers being offset by a decrease to SOC1 managerial freelancers. Indeed, SOC2 professional freelancers reported a small increase from Q3 2022, increasing from £30,204 in Q3 2022 to £31,710 in Q1 2023 whilst SOC3 associate professional and technical freelancers also reported a small increase, increasing from £13,483 in Q3 2022 to £16,622 this quarter. SOC1 managerial freelancers, on the other hand, reported a decrease to their average quarterly earnings from £39,325 in Q3 2022 to £30,803 this quarter.
Overall, average quarterly earnings have remained relatively stable since Q3 2022, with small increases to SOC2 professional and SOC3 associate professional and technical freelancers have been offset by a decrease to SOC1 managerial freelancers.
Freelancers’ average quarterly earnings
Employee earnings are based on ONS data on gross weekly earnings by employees. The weighted average is based on the relative size of freelancers in the labour market in the corresponding year. *Employee earnings are based on Office for National Statistics (ONS) data on gross weekly earnings by employees from the provisional 2021 Annual Survey of Hours and Earnings, October 2021 the revised 2020 Annual Survey of Hours and Earnings, October 2021, the revised 2019 Annual Survey of Hours and Earnings, October 2020, the revised 2018 Annual Survey of Hours and Earnings, October 2019, the revised 2017 Annual Survey of Hours and Earnings, October 2018, the revised 2016 Annual Survey of Hours and Earnings, October 2017 and the revised 2015 Annual Survey of Hours and Earnings, October 2016 respectively.
Just over half of freelancers (55%) now expect their input costs to increase over the next 12 months which is a slight decrease compared to Q4 2022, where 88 per cent of freelancers forecast an increase.
A further 33 per cent of freelancers forecast no change in their input costs for the next 12 months whereas just one per cent of freelancers predicted a decrease in their input costs for the next 12 months.
In terms of quantifying the expected change in input costs for the next 12 months, freelancers now predict that their input costs will increase by 9.2 per cent.
Almost three-fifths of SOC1 managerial and SOC3 associate professional and technical freelancers (58% and 57% respectively) reported that they expect an increase in their input costs for the next 12 months.
Overall, freelancers are expecting an increase in their business costs for the next 12 months with freelancers expecting current macroeconomic pressures to continue to impact their freelance business.
Freelancer input cost change over the next 12 months
The weighted average is based on the relative size of freelancers in the labour market in 2022.
Encouragingly, the percentage of freelancers incurring business debt has dropped significantly since our last report in Q4 2022, falling from 51 per cent of freelancers in Q4 2022 to 22 per cent in Q1 2023. This is largely driven by an increase in the number of freelancers reporting that they have no business debt, rising from 47 per cent of freelancers in Q4 2022 to 74 per cent this quarter.
Just over one in 10 freelancers (11%) are now incurring debt through credit cards issued in the name of their self-employed business, which represents a decrease on our findings in Q4 2022 (19%).
Similarly, compared to 16 per cent of freelancers incurring debt from a commercial bank in Q4 2022, just seven per cent of freelancers now report this to be the case in Q1 2022.
A further three per cent of freelancers are incurring debt via loans from government agencies whilst two per cent are incurring business debt through business loans from a non-bank financial institution.
Two per cent of freelancers also reported that they are incurring business loans from a friend or family member whilst one per cent were incurring business debt through loans from other businesses.
Overall, it is encouraging that the number of self-employed businesses incurring debt has dropped compared to Q4 2022, with freelancers now more likely to report that they have no business debt in Q1 2023.
Freelancer Business Debt
Last quarter, job-related stress levels increased from 5.60 in Q3 2022 to 6.38 in Q4 2022, driven by increases to all three SOC groups (on a 10-point scale where zero is not at all stressed and 10 is extremely stressed).
This quarter, job-related stress levels have decreased from 6.38 in Q4 2022 to 5.92 in Q1 2023.
SOC1 managerial freelancers reported a decrease in their job-related stress levels, decreasing from 6.95 in Q4 2022 to 6.09 in Q1 2023 whilst SOC2 professional freelancers also reported a decrease, falling from 5.94 in Q4 2022 to 5.27 this quarter.
SOC3 associate professional and technical freelancers remained relatively stable in their job-related stress levels, falling on slightly from 6.43 in Q4 2022 to 6.40 this quarter.
Overall, job-related stress levels have decreased since Q4 2022, driven by decreases in stress-levels reported by both SOC1 managerial freelancers and SOC2 professional freelancers.
Job satisfaction has now decreased from 6.42 in Q4 2022 to 5.98 this quarter, driven by decreases to all three SOC groups (on a 10-point scale where zero is not at all satisfied and 10 is extremely satisfied).
SOC1 managerial freelancers reported the most significant decrease in their job satisfaction compared to last quarter, falling from 6.29 in Q4 2022 to 5.14 this quarter.
SOC2 professional freelancers also reported a decrease in their job satisfaction, decreasing from 6.20 in Q4 2022 to 5.90 in Q1 2023.
In addition, SOC3 associate professional and technical freelancers reported a decrease in their job satisfaction, falling from 6.72 in Q4 2022 to 6.59 this quarter.
Overall, job satisfaction has decreased from last quarter, with all three SOC groups reporting a decrease in their job satisfaction levels.
In conclusion, freelancers are still extremely concerned about their business costs rising in the next 12 months, as the cost of living crisis shows no signs of abating.
Similarly, despite working slightly more compared to last quarter, freelancers are now expecting an average decrease to their day rates over the next year; with the sector understandably concerned about a looming recession in the UK.
Concerningly, both freelancers’ confidence in their own businesses and the UK economy has decreased compared to last quarter.