Consultancy agreement

If you hire a self-employed consultant for their expertise in an area that your employees may be lacking, you should put in place an agreement that not only sets out the arrangements between you but also goes as far as possible in ensuring there is no employment relationship. Our consultancy agreement is a useful starting point.  

Categories of worker

There are essentially three categories of worker recognised by UK employment law. These are an employee, a worker and a self-employed contractor. The distinction between an employee, a worker and a self-employed contractor has great significance legally because the rights of each are different. An employee is entitled to a considerable level of statutory and common law protection, much more than if that person was self-employed or a worker. Likewise, a worker benefits from certain employment law rights that a self-employed contractor does not. Self-employed contractors or consultants are independent and in business of their own account. It is this category of individual that our Consultancy Agreement is to be used for. However, just because you issue an individual with a document entitled “consultancy agreement” or “contract for services” doesn’t mean they will automatically be classed as self-employed in employment law terms. How you label the agreement is not the decisive factor and tribunals will look beyond the label you’ve attached and examine the realities of the parties’ relationship. If an individual is in reality your employee, you won’t be able to deny their employment law rights by giving them our consultancy agreement! Likewise, we can’t guarantee that the provisions of our agreement will be passed by HM Revenue & Customs for the purposes of determining self-employed tax status as it too looks at the reality of what happens in practice.

Key clauses

The specifics of the consultancy agreement will depend on the situation and the particular needs of your business and therefore what we’ve produced is a starting point only, containing what we think are the key clauses plus some additional ones too. From a legal perspective, in order to try to ensure self-employment (rather than risk the individual being an employee), you should ensure the agreement contains the following clauses - and then practice what you preach by ensuring they reflect the reality:

• specific timescales for the appointment

• no set hours of work

• only a minimum level of “control” exercised over the consultant, i.e. their method of working is their own

• no exclusivity, i.e. the consultant can work for other people - but it’s acceptable to provide that they won’t accept other engagements which might lead to a conflict of interest

• a power of delegation/substitution which permits others to carry out the work if the consultant is unable or unavailable to work

• payment of the consultant’s fee on submission of an invoice

• the consultant to be responsible for their income tax/NI liability as a self-employed person – and try to obtain a tax indemnity just in case HMRC decides otherwise

• confirmation that it is the intention of the parties that the consultant is a self-employed independent contractor

• if possible, build in some financial risk, e.g. the consultant only gets paid when performing services for you and not otherwise, meaning that some days they may not be paid if there’s no work for them to do.

We’ve covered all of these in our Consultancy Agreement . A consultant would also generally provide their own tools and equipment, and provide their own support staff and pay them directly at their own expense.