Using freelancers and consultants can be an effective way for your business to get the expertise it needs, without taking on the liabilities and obligations of an employee. Consultants can be engaged flexibly as required or for a specific project.
As with any business relationship, a written contract should be a priority before any services are provided. A contract protects both parties, setting out their obligations clearly and reducing the risks of a misunderstanding or dispute. Without it, you are relying on a verbal agreement, which is unlikely to be the same agreement in the minds of those involved or cover all of the issues. Be clear what the services are, when they have to be provided, what standards are required, and how things will be put right if the services are not up to the expected standard or delivered on time. Agree how and when the arrangement can end.
You (and the consultant) will want to ensure that the consultant is seen to be self-employed for both employment law and tax purposes. A self-employed consultant has limited employment-related rights and doesn’t have to be provided with things such as a pension and paid holiday. The key factors that decide the employment status of a consultant are whether they are subject to your control when providing the services, and whether they have to deliver the services personally. The contract should confirm the consultant’s status. This usually means clauses allowing the contractor to determine how the services are provided and to bring in someone else to provide the services in their place, known as a substitution clause. Where possible the consultant should provide their own equipment and be able to work for other clients. Avoid words such as ‘duties’ and ‘instructions’, which suggest an employment relationship, and make clear the intention of the parties that the consultant is self-employed.
However the contract is only part of the story, the actual relationship is just as important. Over time it is easy for a consultant to become integrated into the business. If this is the case, it won’t matter what the contract says, a Tribunal or HMRC will look at the facts to decide if the consultant is still self-employed. You should therefore review the relationship regularly to see if things have changed and take steps to rectify this or adopt the new arrangement.
But ultimately the decision about whether an individual is self-employed or not rests with HMRC and the courts. The contract should protect you if the consultant claims to be an employee or HMRC decides that the consultant is an employee. You want to be able to claim back any money that you have to pay.
If the consultant is providing their services through a limited company, the company will be the party to the contract. You need to ensure that the individual has to abide by any obligations, particularly those that protect your confidential information and client connections during the agreement and after it ends. To do this, the consultant company should be required to make sure that the individual abides by those clauses, and consider a separate letter from the individual consultant confirming their obligations. If the consultant is creating intellectual property for you, these rights will remain with the consultant unless specifically assigned to you. This should be done in the contract. These things should not be left to chance.