When contractors hire other contractors – a guide

If you use independent contractors as a contractor company, by which I mean other self-employed consultants, here are 10 points which you should consider in relation to the agreement between your own one-person business and theirs, writes Sue Mann, commercial solicitor at Cousins Business Law

1. Consultant's status

You will want to do what you can to ensure that the consultant will NOT be treated as an employee of the business, not only for tax and national insurance purposes, but also so that the business will not have the responsibilities and obligations as employer which would apply if the consultant were to be an employee of the business. Many consultants use a business name. Whatever the position regarding the identity of the consultant, you will need to make sure your agreement is in the correct legal name. If your consultant works via his or her own company you will need the details. In such cases, you may wish to consider putting other protections in place as well.

2. Length of the engagement

You will need to specify whether the consultant’s services are only required for a set period of time or for a specific project or whether your business’s requirement for the consultant’s services is indefinite or occasional. Where relevant, the agreement should deal with how the arrangement can be brought to an end and any other matters which will apply at that stage such as return of any property belonging to your business.

3. Services

As with any business relationship, it should be absolutely clear what services the consultant will be providing to your business. The scope of the services should be agreed in sufficient detail to ensure that your expectations will be met and to avoid any misunderstandings – which could be costly in terms of time, fees and reputation for your business! Almost needless to say, you should cover all relevant aspects such as where, when and how the services will be performed, bearing in mind that you are dealing with an independent provider.

4. Substitutes

The consultant will be responsible for ensuring that the agreed services are provided. You will need to agree if you expect a particular individual to do that again, bearing in mind the self-employed status of the consultant.

5. Fees

The basis on which the consultant will be paid should be clearly understood. For example, whether the fee is a fixed sum or will depend on variable factors such as time spent or precisely what services are required during the engagement. If the fee is variable, agree the charging basis such as daily rate or tariff. If any expenses will be paid, agree any applicable limits or procedures for reimbursement.

6. Payment

Agree when fees will become due e.g. at the end of a piece of work, monthly etc, invoicing procedure and timing of payments e.g. number of days after invoice.

7. Other activities

If you expect there to be any limitations on what the consultant can do when NOT providing the agreed services to your business, then that will need to be agreed in writing by the consultant in a way that will not be so restrictive as to be unenforceable.

8. Confidential information

If the consultant will be given, or will have access to, information which is confidential to your business you will need to include appropriate provisions in the agreement to protect that information.

9. Intellectual property

If the services to be provided by the consultant are expected to result in the creation of original materials by the consultant, the ownership of the rights in those materials should be covered in the agreement.

10. Insurance and liability

You should check that the consultant has appropriate insurance cover in place for loss or damage caused to your business as a result his or her actions or failings in the delivery of the services and agree how any liability will be apportioned and met. It will be particularly important to deal with these issues where the consultant deals direct with your clients or other third party on behalf of your business, because the client or other third party will look to your business for compensation in the event it suffers loss or damage.

Sunday 29th Apr 2012
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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