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Your business may require temporary or freelance staff as well as permanent employees. This may be due to workplace flexibility or a temporary cover for permanent staff members. A consulting agreement is the best way to record a relationship between your company and a freelance consultant. This document is also known as a freelance agreement or contractor agreement. This article will explore when you need a consulting agreement, how it differentiates from an employment agreement and why the terms are important. Furthermore, it outlines what you must include in the contract so your business can safely and effectively engage freelancers.
When Do I Need a Consulting Agreement?
Your business needs a consulting agreement to record the contractual relationship between the company and the freelancer or contractor. Moreover, this differs from a standard employment agreement due to the varied nature of the relationship, different requirements and remuneration. For example, suppose a business wishes to recruit several remote writers. The company may expect the writers to purchase their own laptops, pay for their internet and produce material that belongs to your company. Accordingly, the consulting agreement will reflect this unique arrangement.
Consulting Agreement vs Contract of Employment
A contract of employment usually provides a base monthly salary regardless of workload and enhanced rights against termination of employment (known as unfair dismissal rights). In comparison, consultancy agreements usually only pay per piece of completed work and allow you to end the contract without much legal risk to your company. Additionally, it clarifies that there is no employment relationship with the self-employed individual. Rather, you have a business relationship paying invoice costs for that individual’s consultancy services. Importantly, this puts the onus on paying tax on the self-employed consultant, not your business.
Using the above-mentioned remote writer example, if the client company suddenly requests zero articles for one month, they could potentially pay £0 under a consulting agreement. In contrast, they may still be liable for the base monthly salary under an employment contract despite receiving no written articles. However, as per all contracts, you should check the terms of each agreement.
Another difference is that your company may expect freelancers to provide and use their own equipment. Your business will usually invest in equipment where necessary, and using a freelancer (and their equipment) can reduce your costs. In contrast, asking employees to buy and use their own property for work is more unusual.
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Why is it Important to Clarify Who Owns the Work?
Your business is home to confidential information and intellectual property (IP). Furthermore, many consultants will view or create confidential information or IP in their work for your company. A consultancy agreement can limit when a freelance consultant can and cannot disclose confidential information outside your business.
For example, suppose you run a photography business specialising in weddings. Your company may agree that the freelance photographer can use five high-resolution images from each wedding on their personal website. The clause could specify that credit is given to your company when doing so.
Key Takeaways
It is a good idea for your business to have consulting agreements in place with any individuals who are not employees. Freelancers or independent contractors receive less legal protection against contract termination. Furthermore, they lack the same rights as employees, such as unfair dismissal claims in employment tribunals. Consultancy contracts vary in nature and content. Therefore, it is worth considering whether an experienced lawyer would be best placed to quickly draft, tailor and provide these essential contracts.
If you need help with contracts relating to consultants or freelancers, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Ensuring your business owns the content is essential to avoid requiring the contractor’s consent to use that material in the future. In the case of a freelance photographer, the absence of a consulting agreement spelling out that your company owns their pictures may result in them belonging to the freelancer, not your business.
Some businesses, such as photography businesses, primarily obtain their income through one-off events like weddings or baby photoshoots. This makes the demand for a consultant’s services unpredictable due to the peaks and troughs in their bookings calendar. As such, hiring a freelancer may be more commercially beneficial than a permanent full-time employee.
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