What is a Consultancy Agreement?
A consultancy agreement is a legal contract between a company and either an individual consultant or a company providing consultancy services.
A consultancy agreement is a legal contract between a company and either a self-employed individual consultant or an individual providing their consultancy services through their own limited company. The agreement sets out the terms on which the consultant will be engaged. The contract is often also known as a consulting services agreement, a freelance agreement (or freelancer agreement), a business consulting agreement, an independent contractor agreement or a consulting agreement.
When should you use a Consultancy Agreement?
A consultancy agreement is used to engage an independent contractor (or freelancer), which could either be a self-employed individual or an individual providing their consultancy services through their own limited company. Consultants are generally engaged to provide their expertise for a specific project or period. For example, this could be a software implementation consultant who is brought in to implement new software by installing any required hardware/software, as well as conduct training sessions with staff etc. The flexibility afforded by a consultancy agreement is optimal especially where the requirement for a specific skill set or expertise is limited.
The intention of this consultancy agreement is that the employment status of the individual will be that of an self-employed consultant/independent contractor, rather than an employee. However, regardless of what the agreement says, employment status is determined by how an individual operates in practice.This is a simple version of the consultancy agreement which can be used for a fixed term or an indefinite term, and can be terminated by either party serving notice on the other. If you require a more extensive agreement, please use the ordinary Consultancy Agreement on PocketLaw.
Why is a Consultancy Agreement important and why should you use a Consultancy Agreement?
Consultants are valuable assets for companies as the arrangement allows a company to benefit from a particular skill set, experience or expertise that it does not have within its existing workforce, without having to use resources such as time and/or money to recruit or train personnel.
A consultancy agreement would also encourage an outside perspective which is often valuable as the breadth of experience may bring in solutions which you have not previously considered. Consultants are regularly engaged to smoothen the transition period of a company as they provide extra support during an expansion, relocation, restructuring, implementation of systems and/or processes, merger or acquisition etc. A consultant would be able to hit the ground running from day one, thereby adding value immediately and increasing productivity without any training time gaps.
As the company would not need to pay for employer contributions for consultants, nor insurances or any pension contributions, this is often seen as the most cost effective method of filling in a skill gap without the long term commitment.
What are the common pitfalls of a Consultancy Agreement?
From the company’s perspective it is critical that the contract is used properly and hereby reflects the status of the individual in person - i.e. a company should only use this agreement where the status of the individual is definitely not that of an employee.
Intellectual property (IP) created by an employee as part of an employment would generally belong to the employer/company. However, the same rule does not apply to the company-consultant relationship. Any IP created as part of the engagement would, if not specifically dealt with, generally be owned by the creator (e.g. the consultant). It is therefore strongly advisable, especially if it is anticipated that the consultant will be creating any IP (for example any development of any software, creation of any marketing or training material etc), that clear terms are included in the consultancy agreement to make sure that the ownership of all IP created will be assigned to the company, and that the consultant will disclose all and any IP created as part of the services provided. These protective measures, as well as further protective terms, are included in the agreement available on our platform.
Whilst it may be tempting to include post-termination restrictive covenants in the consultancy agreement (limiting what the consultant can do after the agreement terminates), a court would be more likely to find that the individual is an employee rather than a self-employed independent contractor. If it is determined that the employment status of the individual is that of an employee, the company might be liable for unpaid tax, etc. A balanced yet thorough approach is therefore key in creating a suitable consultancy agreement.
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