Guide to our Consultancy Agreement Template for an Individual

Posted by David Cammack on 29th June 2015

Here is our abbreviated guide to Legalo’s Consultancy Agreement template which is for use by a business taking on a consultant who is:

1. to be an independent contractor and genuinely not an employee; and

2. an individual and is not operating through a limited company (for example, a “personal services company”).

You receive a copy of the full guide when you buy the template. This template incorporates various options, so it is appropriate:

1. whether or not there is a right for the consultant to send a substitute on his or her behalf;

2. whatever the length of the agreement: short, long, an indefinite term or a fixed term; and

3. whatever type of services are being supplied.

If the consultant is contracting via a company (including a “personal services company”) then you need our other consultancy agreement template – called “consultancy agreement for a company” – click on the link.

The question of whether a worker is an employee or an independent contractor is unfortunately not entirely up to the parties – the Employment Tribunal and HM Revenue and Customs both might have their own views on this, so what you state in the agreement is not conclusive. However, knowing what they consider can help you to set up your arrangements in such a way that it is more likely the person is genuinely an independent contractor.

If you are in doubt as to whether the person would be properly classed as an employee or an independent contractor, you can use the tools on the HM Revenue website to help identify the risks and how you need to frame the arrangements to avoid problems: http://tools.hmrc.gov.uk/esi/screen/ESI/en-GB/summary?user=guest.

Clauses in this Consultancy Agreement for an Individual

Date – Insert just the year at this stage. Handwrite the rest of the date in the agreement once all the parties have signed it.

Party clauses – You will need to insert the names and addresses of party 1 (the client) and party 2 (the consultant). If the client is a company insert the country where it is incorporated and its company number.

Numbered clauses

1. Interpretation – This clause defines the main terms used in the agreement. We have used “he/him/his” throughout to include “she/her”, on the basis that putting “he/she” in every case looks clumsy. No sexism is intended by this and with the “Find/Replace” function in Word you would be able to alter this fairly easily throughout the template if that is your preference.

Business – Fill in a brief description of the nature of the client’s business.
Business Opportunities – The consultant is to refer to the client any opportunities he comes across during the engagement.
Confidential Information – This defines the sorts of matters that the client considers confidential and that the consultant might have access to during the engagement. Amend it if there are any other types of matter or information the client has that are not already covered by the definition.
Engagement – This refers to the overall arrangement or project. Details of the specific work the consultant is to do for the client should be inserted in the Schedule.
Insurance – Insert the minimum levels of insurance cover to be held, e.g. £1 million. If there are any types of insurance listed that the consultant need not hold, then delete them.
Intellectual Property – This is a wide definition of different types of intellectual property rights, e.g. copyright.
Invention – This refers to discoveries made by the consultant during the engagement.
Services – Full and clear details of the specific work the consultant is to do for the client should be inserted in the Schedule.
Substitute – Delete this definition if the consultant is not to have the right to send a suitable substitute in his place if he is not available (e.g. due to holiday or sickness). Otherwise just delete the square brackets around the definition. See the note on clause 3.3 below.
Works – This refers to the matter the consultant produces for the client.

2. Term of engagement – This states that the consultant is engaged to provide the services to the client. In clause 2.2 insert the start date, whether it has already passed or not – it can be a date in the past or future.

3. Duties of the consultant – This clause deals with how the consultant is to provide the services and what responsibilities he has to act properly towards the client. In clause 3.1.3 fill in the number of hours or days the consultant is to work for the client each month during the project. This acts as a minimum level. Clause 3.1.8 refers to an anti-harassment and bullying policy of the client – delete this if there is none; reword it if it has another name; add other policies of the client that the consultant must observe if relevant. Ensure the consultant is promptly given copies of any such policies, so he is aware of them.

Clause 3.3 gives the consultant a right to send a substitute, as referred to above. Delete this clause if this does not apply. Having the power to send a substitute is one factor that might be relevant to the question of whether the consultant is an employee or an independent contractor – it helps point towards the latter.

4. Charges – In clause 4.1 set out the rate of pay agreed with the consultant and whether VAT is payable on top or not. In clause 4.1.1 select if the consultant is paid per hour or day, and, if there is no right to send a substitute, delete the words “or any substitute”. In clause 4.2 state how many days after receipt of the consultant’s invoice it will be paid, e.g. 7.

5. Expenses – If the consultant is entitled to reimbursement of proper expenses, then keep the wording for the first option in clause 5.2 and delete the second, and also delete the whole of clause 5.3; if not, then delete the first option and keep the second in clause 5.1 and keep clause 5.3. In clause 5.3 if you are keeping it, state how frequently the claims should be submitted, e.g. monthly and how quickly after submission they will be paid, e.g. in 7 days (provided the claim is correct and has the appropriate receipts as proof).

6. Relationship – As noted above, the “independent contractor” status that you state applies in clause 6.1 is not conclusive of the actual status of the consultant. In case the Revenue claim he is an employee and send the client a bill for unpaid tax (on the basis that the client as employer should have applied PAYE deductions to the consultant’s pay), in clause 6.2 we have included an indemnity from the consultant to the client for the tax bill (and the employer’s national insurance contributions that will apply as well). This is because the Revenue will no doubt claim the tax from the client for failure to apply the PAYE rules if the consultant has not already paid it.

7. Other interests – Many genuine independent contractors have other jobs or consultancy roles and are not working full-time for one party (otherwise the risk that they are classed as an employee increases significantly, particularly if the engagement is for several months). As a result, clause 7 confirms the consultant can have other work, but it aims at avoiding the consultant’s working for a competitor (at least) during the engagement. There is no restriction in this agreement on his working for a competitor after the end of the engagement.

8. Intellectual property – This clause puts in place protection for the client’s existing intellectual property rights and any more such rights created by the consultant during the engagement. Clause 8.5 requires insurance to be held to cover breach of clause 8.4 both during and after the end of the engagement. State how many years it should be held for after the end f the engagement. Clause 8.9 contains a power of attorney from the consultant to the client so that the client can sign documents to correct anything the consultant ought to have done but has not done according to the rest of clause 8.

9. Indemnity and insurance – If the consultant breaches the agreement, he is liable to the client on “an indemnity basis” – this is better for the client than just for a simple breach of contract. This indemnity is backed by the insurance required earlier, as per the definition of “the Insurance”.

10. Termination – Clause 10.1 provides that either party can terminate the engagement on giving suitable written notice to the other – it is intended this might be used for lengthy or open-ended engagements, but this might not be appropriate to a short engagement. State how long a period of notice is required. If the engagement is for a short fixed term then it may be preferable to change this clause to read:

“10.1 Except where the agreement is terminated in accordance with clause 10.2, it shall last for a period of [NUMBER] months and then terminate automatically.”

Clause 10.2 provides that the client can terminate the agreement early and on immediate notice to the consultant in writing if, for example, the consultant breaches the agreement or causes harm to the client’s reputation.

11. Consequences of termination – When the agreement is terminated (for whatever reason), the consultant needs to hand over to the client all assets belonging to the client and all material relating to the engagement (including copies from his computer), and then delete any copies still remaining on his computer.

12. Confidential information – This clause seeks to protect the client’s confidential information.

13. Data protection – This clause authorises the client to handle personal data on the consultant as needed for the engagement.

14. Variation – Any variation to this agreement must be in writing signed by both parties, e.g. if an extension to a fixed term in the alternative version of clause 10.1 set out above is agreed on.

15. Counterparts – As the agreement is being signed as a deed, so you can have one print of it signed by the first party and held by the second party, and another print signed by the second party and held by the first party, this clause provides for this to be permitted.

Schedule – Full and clear details of the specific work the consultant is to do for the client should be inserted here, together with details of to whom he should report, and where he should work. If specific “deliverables”, etc have been agreed, they should be set out here or it should refer to another document where their full details are set out – such an additional document should be annexed (attached) to this agreement when it is being signed and reference should be made in this schedule to it as being annexed to this agreement.