InsightsInsight - Employment & HR - POSTED: May 17 2021
Consultancy agreements: An upwards trend
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We have recently seen an increase in the use of self-employed consultants by our business clients and requests for consultancy agreements to be drawn up.
Consultants have historically been used to provide a certain skill or to provide work on a particular project.
In this article, we explore why we might be seeing an increase in the use of consultants and whether the role of a consultant is widening.
We also provide useful legal guidance for organisations who already employ consultants, or those wishing to do so.
The rise in consultancy
COVID-19 is likely to have played a large part in the increase we are seeing in businesses contracting with consultants.
With the uncertainty of the pandemic, many businesses have put in place recruitment freezes restricting the hiring of permanent employees. As an alternative, consultants can provide a more flexible option where businesses are uncertain of their long-term recruitment needs.
Businesses’ legal obligations
Generally speaking, businesses have less legal obligations towards a consultant than an employee . For example, consultants who are genuinely self-employed are not entitled to sick pay, holiday pay or pensions. Furthermore, only employees have the right to bring a claim for unfair dismissal.
Consultancy – the pros and cons
Whilst the lack of employment rights in consultancy work could be seen as a disadvantage to those seeking work, some individual’s enjoy the flexibility that this type of work allows.
The pandemic has created a shift in many peoples’ perceptions of how and when they work. Many of us have had to adapt to home working and in more flexible ways, and do not necessarily want to return to pre-pandemic routines. Others have been placed on furlough leave and have considered other business opportunities open them.
As we move into a post-COVID world, it looks likely that many people will want to continue with more flexible styles of working. Therefore, the ability to have more say over when and how they work, as well as a greater ability to negotiate the terms of the contract, may lead to a greater number of individuals considering the option of consultancy work.
Will consultancy work be impacted by new IR35 rules?
Consultants generally provide their services as either individuals or through their own personal service company.
From April 2021 new IR35 rules came into force. All public sector businesses and medium or large sized private businesses are now required to assess the tax status of those providing services through their own personal service company. This was previously not the case for the private sector, where the obligation was on the personal service company.
The question for businesses who are receiving the services, simply put, is now ‘but for’ the personal service company, would the individual be an employee for tax purposes?
As a business, this greater responsibility on the client could deter you from entering into consultancy agreements. There is a risk that a greater use of consultancy agreements could mean that consultants who are holding themselves out as being self-employed are actually taking on a role more akin to that of an employee. In this instance, businesses receiving the services of the consultant (the client) are responsible for accounting for tax and national insurance for that individual.
For businesses whose consultants appear genuinely self-employed, the new IR35 rules are unlikely to be a deterrent. HMRC are likely to take a sympathetic view initially to businesses who make a genuine attempt at assessing employment status. Furthermore, a well drafted consultancy agreement can assist greatly in demonstrating the self-employed status.
Is the role of a consultant changing?
If the role of a consultant is changing, which from the above it appears it may be, businesses need to be mindful of the risk of employment tribunal claims where these individuals are not getting the same protection and benefits as employees traditionally do.
We can provide legal guidance with drafting consultancy agreements, advising on employment status or concerns around the new IR35 rules. Take advantage of our free 30-minute initial consultation for businesses, at a time that suits you.
This content is correct at time of publication
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