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A consultant is an individual working under a contract for services. Consultants will not be entitled to the statutory rights available only to employees working under a contract of employment and are responsible for paying their own tax and national insurance contributions.
A consultancy agreement must be drafted on the basis that the consultant is genuinely self-employed and is neither an “employee” or a “worker” of the client. This issue is important because both categories enjoy various protections and different tax treatment to those who are genuinely self-employed. Employees benefit from wide-ranging protection, including the right not to be unfairly dismissed, while workers have more limited protection, including the statutory right to paid holiday.
An employee is an individual who works under a contract of employment. For there to be a contract of employment there must, as a minimum, be an obligation to personally perform the work, mutuality of obligations between employer and employee and sufficient control over the employee’s work. A worker is an individual who performs personally any work or services for another party whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual. In other words, someone who is not in business on their own account.
In establishing employment or worker status, the courts and tribunals will look at the substance of the relationship, rather than the legal form or any labels that the parties have given to the relationship. Where an individual is, on balance, a self-employed contractor but there are some factors which point towards employment, it may be possible for them to reach the “pass mark” to qualify as a worker, even though they do not reach the higher pass mark to qualify as an employee.
As employment-related liabilities will fall upon the client if the consultant is deemed to be an employee or worker of the client, it is important to ensure that as many of the “self-employed indicators” as possible are reflected in the arrangements between the client and the consultant. The consultancy agreements which are available to Alinea Law Members include as many of these indicators as possible, while also providing some protection for the client in the event that the consultant is deemed to be an employee or a worker.
Commercial Agents Regulations
It is also necessary to consider whether the consultant is a “commercial agent” for the purposes of the Commercial Agents (Council Directive) Regulations 1993 (the Commercial Agents Regulations). The Commercial Agents Regulations apply to all self-employed intermediaries with continuing authority to negotiate or conclude the sale or purchase of goods on behalf of another. Key features of these regulations are that:
- Agents are entitled to the same remuneration as other agents who are engaged to sell the same goods and who are operating in the same area.
- On termination of the agency arrangement, the agent is (in addition to any damages for breach of contract) entitled to either an “indemnity” (which is a payment the parties agree represents a certain amount of forecast loss) or, if no indemnity has been agreed, compensation for damages which the agent suffers as a result of the termination.
- Minimum notice periods are implied into any agency arrangement.
If it is possible that the Consultant could be a commercial agent within the Commercial Agents Regulations and a reasonable indemnity cannot be agreed, the client should consider if it would be preferable to engage the consultant as an employee rather than take the risk of an expensive compensation claim on termination.
Alinea Law documents for consultancy
The following documents are available for download by Alinea Law Members, whether you are a consultant or are looking to appoint a consultant:
- Consultancy agreement
- Consultancy agreement (short form)
- Consultancy agreement via a service company
- Side letter to the consultancy agreement via a service company
- Consultancy agreement (short form) (international)
- Consultancy agreement (Scotland)
- Consultancy agreement (short form) (Scotland)
- Non-disclosure agreement with consultant
- Terms and conditions for the supply of services from a recruitment or employment business to an end-user client
- Letter terminating a consultancy agreement
- Intellectual property clause for a consultancy agreement with an individual or service company