The traditional supplier was easy to define: a registered company with an office address, a VAT number, and a sales team you could phone. You onboarded them, signed a contract, and sent purchase orders. The relationship was formal and structured.

That model is increasingly inadequate. The gig economy has blurred the line between employee and supplier, creating a new category of micro-supplier that doesn't fit neatly into traditional procurement frameworks.

The Changing Definition of "Supplier"

Consider the range of people your organisation might engage: freelance designers creating marketing materials, contract developers building applications, interim managers filling leadership gaps, gig workers providing delivery services, consultants advising on specific projects.

These individuals are clearly not employees—they work for themselves, control their own hours, and serve multiple clients. But they're also not traditional suppliers—they don't have corporate infrastructure, formal sales processes, or the resources to complete lengthy onboarding paperwork.

They fall into a gap. HR sees them as not-employees and wants nothing to do with them. Procurement sees them as not-really-suppliers and lacks appropriate processes. Finance needs to pay them but can't figure out how to classify them.

The result is often informal arrangements that create risk for everyone. The gig worker doesn't know when they'll be paid. The organisation doesn't have proper documentation. Nobody has checked whether the arrangement complies with employment law, tax regulations, or insurance requirements.

The IR35 Complexity

In the UK, IR35 legislation adds particular complexity. These tax rules determine whether someone working through a personal service company should be treated as employed for tax purposes, even if they're nominally self-employed.

Since April 2021, medium and large organisations must determine IR35 status for each engagement. Get it wrong, and the organisation—not the contractor—bears the tax liability. The penalties for misclassification are substantial.

This creates a compliance burden that traditional procurement processes weren't designed to handle. You're not just checking insurance and capability anymore. You're making determinations about employment status, control, substitution rights, and mutuality of obligation.

Many organisations have responded by simply refusing to engage contractors through personal service companies—pushing everyone onto umbrella companies or PAYE. This avoids IR35 risk but may not suit all working arrangements and can create its own complications.

The Documentation Challenge

Traditional supplier onboarding asks for company registration, trade references, financial accounts, and professional indemnity insurance. A corporation can provide these documents without difficulty.

Ask a freelance designer for audited accounts and they'll look at you blankly. They don't have a registered office—they work from home. Trade references might mean previous clients who they'd rather not bother. Professional indemnity insurance might exist but might not match corporate coverage levels.

Applying corporate onboarding processes to individual suppliers creates friction that drives good people away. The excellent contractor who could solve your problem may simply decline to engage if the paperwork burden is disproportionate to the engagement value.

Yet the risks are real. Right to work verification matters—hiring someone without the legal right to work in the UK creates liability. Insurance matters—if a contractor damages something or makes an error, you need recourse. Tax compliance matters—the penalties fall on you.

The challenge is finding proportionate processes that manage genuine risks without creating unnecessary barriers.

The "Lite" Workflow Solution

Progressive organisations are developing dedicated workflows for micro-suppliers that match scrutiny to risk. Not zero process, but not the full corporate treatment either.

These workflows might capture: identity verification (right to work), basic insurance confirmation, IR35 status determination, bank details for payment, and a simplified contract covering essential terms. Enough to manage risk; not so much that it overwhelms a one-person operation.

Self-service is essential. Individual suppliers can't spend days filling forms and chasing approvals. They need to complete registration in under 30 minutes, provide documents by uploading from their phone, and get confirmation quickly. Anything else and they'll find clients with less bureaucracy.

Automated verification helps where possible. Right to work can be checked digitally. Company registration (for those with limited companies) can be verified against Companies House. The goal is to remove administrative friction while maintaining essential controls.

The Aggregation Question

Another challenge with micro-suppliers is aggregation. Individually, each engagement might be small—a few thousand pounds for a specific project. Collectively, the organisation might be spending millions on freelance and contractor services.

This aggregated spend often flies under procurement's radar. Each engagement falls below threshold for formal process. Nobody has visibility of the total. There's no strategic management of what is actually a significant category.

When organisations do analyse their freelance spend, they often discover surprises. The same designer is being used by three different departments at three different rates. A contractor who left employment is now being re-engaged at higher cost. Preferred supplier arrangements could aggregate volumes for better terms.

Gaining visibility of micro-supplier spend enables strategic management. Not to bureaucratise individual engagements, but to spot patterns, identify opportunities, and ensure the aggregate portfolio is well-managed.

Building the Capability

Effective micro-supplier management requires investment in several areas.

Technology needs to support lightweight onboarding with appropriate verification. Traditional procurement systems designed for corporate suppliers often can't flex to individual circumstances. Dedicated contractor management platforms may be needed.

Processes need redesign for speed and simplicity. Legal and compliance teams need to define minimum requirements that manage risk without creating barriers. Standard contracts need versions appropriate for short-term, low-value engagements.

Training matters for everyone involved. Hiring managers need to understand IR35 implications before engaging contractors. Finance needs processes for paying individuals efficiently. Procurement needs visibility without necessarily controlling every engagement.

Policy decisions about acceptable working arrangements are essential. Will you engage anyone through a personal service company? What insurance requirements are mandatory? What engagement duration triggers additional scrutiny?

The Future of Work

The gig economy isn't going away. Demographic trends, changing work preferences, and organisational need for flexibility all point toward more, not less, reliance on contingent workforce.

Organisations that develop mature capabilities for engaging micro-suppliers will access talent that others cannot. The brilliant specialist who only wants project work. The experienced interim who can transform a function. The creative who brings fresh perspective without permanent commitment.

Those that insist on treating every engagement like a corporate supplier relationship will lose access to this talent pool. The administrative burden becomes a competitive disadvantage.

The line between employee and supplier is blurring. Procurement needs to evolve accordingly—maintaining appropriate control and compliance while enabling the flexible engagement that modern work increasingly requires.