A Contractor is a self-employed worker who provides services to their contracting principal (“client”) in their own right, rather than as an employee. A particularly common form of contracting is when a contractor becomes attached to one principal, and is engaged in their business for a prolonged period, effectively full-time.
A Contracting Agreement is the terms on which such an arrangement may subsist. Such a contractor might work along-side employees of the principal, and are frequently confused with employees. However, legally they are actually quite different.
An employee is subject to PAYE and National Insurance, whereas contractors will normally expect to be paid gross. There is no NI on Contractor’s fees and the Contractor is normally responsible for their own income tax return. This issue of status retention - often referred to as “IR35” - Is complicated and involves careful consideration of:
- The background for obtaining the commission. Did the job advertisement want a self-employed contractor or an employee? Is the contractor replacing an employee?
- Previous Status Rulings by HMRC e.g. In Construction and IT industries
- The Contract source: a genuine contract is based on the individual conditions that the contractor and client will work to. Contract from agencies, or copied from elsewhere, could be in danger from Revenue review
- Obligations: You should consider what would happen if the contractor were offered work elsewhere – could they leave the client and go and work elsewhere at the same time, or would the client object?
- Control: If the client has control over working conditions, it’s more likely a contractor will be classed as an employee. Clauses to avoid include hours of work (especially break times) and working days
- Right of Substitution: You should ensure there is a clause in the contract allowing the contractor to send a substitute if unable or unwilling to work at any time
- Financial Risk: A self-employed contractor is more likely to be paid on an irregular basis on production of an invoice when certain stages of the project work are completed. Regular monthly payments often indicate employment
- Equipment: a contractor would normally provide their own tools and equipment
- Integration: to ensure that a contractor is not considered part of the client’s business they should have their own business cards and not be shown in the client telephone directory, they should not be part of the management team, and there should be no reporting on staff. The contractor should be distanced from the client
- Intention: the contract should state clearly that the relationship is one of client and contractor, and not of employer and employee.
The legal obligations of a contractor to a client are generally different to those of an employee:
- An employee will normally have a right to be indemnified by the employer for employment matters, whereas it is normally the other way around for contractors
- A contractor is less tightly bound to the principal than an employee e.g. non-competition, solicitation etc.
A Contractor will not generate employment rights (holidays, sickness benefits etc) which an employer will often regard as costly and undesirable.
Contractor arrangements are very common in the IT market, and in many locum and agency situations. In fact contractors can be found working in that capacity in almost every industry due to the benefits to either the principal or the contractor of the factors that are listed above.
A Contractor agreement would be appropriate when either the principal or contractor wants to create a contracting arrangement on terms they themselves either wish, or are asked, to specify.
How long will it take?
The time our work takes to conclude will depend on precisely what we are asked to do, but we would generally expect to have taken your instructions within two days of you having bought this product. We would normally expect to have produced a useable template within 4 working days. Special dispatch may be available where necessary at an extra charge.
Our work for you includes:
- Ascertaining from you the full circumstances
- Preparing an appropriate Contractor Agreement template
- Advising on the negotiation and execution of that form
- Offering advice and support throughout the process
Our work will be charged at a fixed fee of £360 including VAT.
Our fee applies regardless of how much work we actually do. In some cases this may mean we’ll get relatively better paid for doing less work than in other cases, in which the fixed fee will barely cover our costs. This is simply the nature of the mutual gamble between a solicitor and their client when they fix a fee.
More detail of all these matters will be outlined in our retainer letter which you will be able to review before you engage us, after pressing the “Buy” button on the website.
If you have any questions or require any further information, please don’t hesitate to Contact Us.