Consultancy agreement

If you hire a genuinely self-employed consultant for their expertise in an area that your employees may be lacking, you should put in place an agreement that sets out the arrangements between you.

Categories of worker

There are four categories of worker recognised by UK employment law. These are an employee, an employee shareholder, a worker and a self-employed contractor. The distinction between each category is important because their rights are different. An employee is entitled to a considerable level of statutory 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” doesn’t mean they will automatically be classed as self-employed in employment law terms. Tribunals will look beyond the label you’ve attached and examine the realities of the parties’ relationship. In fact, the agreement won’t even be the starting point as assessing employment status is a matter of statutory interpretation, with the tribunal looking at the wording of the relevant legislation and taking a purposive approach; it’s not a matter of contractual interpretation. If an individual is in reality your employee or worker, you won’t be able to deny their rights by giving them our consultancy agreement!

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. From a legal perspective, to try to ensure self-employment, make sure the agreement contains the following clauses and that these clauses then also reflect the reality of what actually happens in practice and aren’t just designed to prevent employee or worker status from arising:

• specific timescales for the appointment and no set hours of work
• only a minimum level of “control” exercised over the consultant
• 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, unavailable or unwilling to work
• payment of the consultant’s fee on submission of an invoice and 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
• build in some financial risk, e.g. the consultant only gets paid when performing services for you, 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, equipment and support staff.