Using consultants

Using a consultant in your business can be an attractive alternative to employing someone. But it's important to properly differentiate between an employee and consultant as failing to do so can lead to problems.

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What is a consultant?

A consultant is someone who, acting as an individual or through a service company, provides services to your business on a self-employed basis.

The consultant is not your employee and therefore does not have a contract of employment.

Instead, the consultant provides their services to your business under a consultancy agreement.

This is basically a services agreement between the consultant and your business, which sets out the services to be provided and the agreed payment.

Why use a consultant?

Using a consultant, rather than an employee, to provide services to your business can be an attractive option.

It offers flexibility, allowing the business to use the consultant for specific projects, as and when the occasion demands, to meet the requirements of the business.

The fact that the consultant is not an employee has several potential advantages including:

  • financial savings because the business using the consultant should not have to pay national insurance contributions
  • engaging consultants can be less hassle because the business does not have as many obligations towards the consultant as it does to its employees

Things to be aware of

Labelling someone a 'consultant' won't work, if in fact they are behaving and being treated like an employee.

If the tax authorities or an employment tribunal decide that the 'consultant' is really your employee, they will ignore the label and treat the consultant like an employee and you may lose any advantages. This can include having to pay tax payable under a normal employment relationship.

To avoid this situation, you need to be very careful about what's in the consultancy agreement, particularly around issues such as how much work you have to provide, how much you control/supervise the provision of the services, the length of the appointment, whether the consultant is integrated into your workforce and if the consultant can work for anyone else. Consider using Rocket Lawyer's Consultancy agreement to help ensure you keep to the rules. 

You also need to be particularly careful about confidentiality and intellectual property created by the consultant. Once again, consider using Rocket Lawyer's consultancy agreement to help ensure you stay legally safe.

Can you ask for a retainer fee?

A retainer will involve a fixed, guaranteed payment made by a client which effectively puts the contractor on 'stand-by', to be called upon as and when the client requires them. The retainer may be paid for a set period of time but again enabling the client to access the contractor's services when the need arises. However, whether or not to accept a retainer fee will need to be a commercial decision for you to make. But you will also need to be aware of the implications of accepting a retainer fee, including how it affects your contractor status. This is because the very nature of the arrangement attaches to it obligations, ie for the client to pay the freelancer an ongoing fee in return for the expectation by the client for the contractor to make themselves available, normally at short notice.

Data protection

The process of engaging a consultant will result in you collecting and processing the consultant's personal data. As part of their engagement, the consultant is also likely to process personal data belonging to you as the client. As such, you should be aware of the Data Protection Act 2018 (DPA). The DPA is the main legislation implementing the General Data Protection Regulations (GDPR) in the UK.

For more information read Data protection and Processing personal data.

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