When you start your own business, it is important to make sure that you have the right contracts for the people who work for you. The status is essential.
People you employ and those you consult have completely different rights and obligations.
How do you avoid being sued for unfair dismissal or wrongful termination? Make sure you understand and apply the different requirements for the different types of worker.
You have to draft, preferably by a lawyer, a contract of service. YOU decide what, where, when and how. It is your duty, as an employer, to provide the work, the tools and the equipment.
You need a contract for service when you solicit experts or professionals for advice in a particular field of your business. They are independent and external.
Rights and obligations
An employee’s rights and responsibilities are protected by law; whereas a consultant is considered to be his own boss and don’t have employment rights and obligations.
Some of the duties owed:
- Remuneration – in this case, for your employees it’s regular pay while a consultant will submit invoices when his work is done.
- Observation of health and safety – this is applicable to both employees and consultants.
- Mutual trust and confidence – a breach of this duty would be harassment or theft.
But some rights are only protected for employees:
- A minimum of four weeks or holidays per year
- Sick pay
The main difference for you as a business owner is taxes and National Insurance Contribution (NIC). A consultant pay his own taxes and NIC, while you legally responsible for you employees’ contributions.
Be careful with your employee/consultant classification
A mischaracterisation can lead to a violation of employment law. If you don’t set the right contract, it could have expensive and troublesome consequences.
There is no doubt that a well-drafted consultancy agreement is essential, but courts will not only look at the contract but at the nature of the relationship. If you treat a worker as an employee, they may be able to establish an employee/employer relationship when it relates to their rights.
Here are five tips to consider to avoid any confusion:
- Title – the label you give is an indicator of the status
- Instructions – the when,where, and how test for employees
- Right delegate/hire an assistant – can be included in a consultancy agreement
- Full time/exclusivity – a consultant can seek other work