It is important for a business to ensure it has appropriate protection (a written consultancy agreement) governing the relationship between it and a self-employed individual providing services to the business.
This is particularly the case for those in the emerging “gig economy” given the development of recent case law including the high profile Uber taxi drive case affording self-employed taxi drivers “worker” status and increased legal rights to paid holidays, national minimum wage and working time protections.
There is no legal definition of “consultant”. Generally speaking a consultant is a self-employed independent contractor who is engaged to provide specific expertise for a particular project.
Consultancy is a valuable commercial tool for any business. It allows the company to access a particular skill or expertise that it does not have within its existing workforce, without needing to spend time recruiting or training employees. Consultancy is a more commercial and flexible relationship than employment, which makes it ideal where the company has a limited need for the skills or expertise that the consultant provides.
A consultant who is genuinely self-employed is not an “employee” or a “worker” as defined in section 230(1) and (3) of the Employment Rights Act 1996.
There are circumstances (which are now evolving through developing case law) in which someone who might otherwise be considered a consultant can be held to be a “worker” or “employee” and then protected under legislation that is ordinarily only available to “employees” or “workers”.
This is because the law looks beyond the label applied to a relationship by two parties and looks at the reality of the relationship in practice when making a decision as to employment status.
From a business perspective, there remains the main benefit of engaging a consultant (self-employed individual/independent contractor) rather than an employee as the client is free from the statutory obligations and liabilities that govern an employment relationship. The client can also structure the consultancy arrangement with greater flexibility to suit its commercial needs.
However, a business cannot control the consultant as closely as it would an employee, unless it can negotiate strict controls in the consultancy agreement (but, in so doing, it runs the risk that the consultant will be found to be an employee).
From the consultant’s perspective, the main benefit is that they may be able to claim more favourable tax treatment as a self-employed individual than is available to employees. This favourable tax treatment is often more attractive to the consultant than the rights and protections which would be available as an employee. They will also generally have greater flexibility in the way they work, including the ability to work for multiple businesses at the same time.
The drawback for consultants is that they do not benefit from the statutory protections of employment status. They will also have less security in their earnings, and be exposed to greater financial liabilities, for which they will commonly need insurance (or to incorporate a service company in order to limit this liability).
Business owners and HR management need to be alive to this developing employment status issue and define and structure the relationship between a self-employed individual/independent contractor and the business properly.
Farleys Employment Law & HR team are experts in advising on employment status and consultancy agreements.
We can undertake an assessment of how this evolving legal issue of employment status affects your business and provide advice in relation to this; together with updating existing or drafting new consultancy agreements.
Farleys Employment Law & HR team can be contacted on 0845 287 0939 or through our online contact form.