Contents

  1. 1. How do I write a consultancy agreement?

Consultancy Agreement Template

June 30, 2021There’s a difference between hiring someone as an employee and paying a consultant to provide a service. Consultants are experts in a particular field – like finance or technology – and are brought in as independent contractors or freelancers. They’re self-employed, meaning they’re not protected under employment law and are responsible for their own taxes.If you’re considering bringing a consultant on board, it’s advisable to draw up an agreement that clearly states that the consultant is an independent contractor and that it is a contract for consultancy services only.This is to ensure that both parties are protected and that they understand their commitments to one another, as well as confirming any payment obligations. A consultancy agreement will also outline other important issues, such as intellectual property rights.Writing a consulting agreement can be complicated and time-consuming, so we’ve written this article to give you some guidance on how to create one. We’ve also included a template that you can download and adapt.

How do I write a consultancy agreement?

Once you’ve made the decision to hire a consultant for your business, you’ll need to draw up a contract outlining the following:
    Details of the client company and the independent contractorThe consulting services that are to be provided by the contractorThe terms of this agreementWhat the fees will be Any other information, such as whether the consultant can work for anyone else and who owns the intellectual property that they create
Both the client and the consultant will need to review and sign the consulting services agreement to make sure everyone knows where they stand, so there will be no crossed wires over important issues like deadlines and pay.

When to use a consultancy agreement

Whether you’re hiring a consultant to provide you with services to your business on a self-employed basis or through an intermediary, such as a private limited company (PLC), a contract needs to be drawn up.In contrast to the employment agreements that apply to those you’ve hired on a more long-term basis, consultancy agreements are for individuals who provide you with periodic or temporary services. This is usually limited to a specific project that can’t be completed by your staff in-house.Employees and independent contractors are treated differently by law but it’s not always easy to establish which category each of them falls into. It’s not enough to simply state that the consultant is self-employed and not an employee. Even if you have a consulting contract, courts can look at other factors when determining the consultant’s employment status, subsequently determining whether or not the contractor falls inside or outside of IR35. These could include who controls the work, whether the contractor has to provide progress reports and for how long they’ve had a relationship with the company. However, there are a number of things you can do to avoid confusion:
    Don’t be tempted to use the same consultant for an indefinite amount of time without breaksAllow the consultant to work for companies other than youGive them control over their working conditions, letting them decide how and when they workTry not to integrate them into the workplace too much – for example, by not giving them a company email addressLet them use their own equipment
Making the distinction between the two is important for tax reasons and health insurance, as well as avoiding employment law claims relating to things like sick leave and unfair dismissal.It's worth noting that in April 2021, the government made a change to the IR35 legislation. Now, a contractor who's been hired by a company is not always solely responsible for assessing their own employment status. With small businesses, the contractor will continue to determine whether they're deemed an employee, however it's down to public authorities and medium and large businesses in the private sector to check whether the rules of IR35 apply to a worker they've hired. Find out more about what this means for your business.

Why have a consultancy agreement

A consultancy agreement outlines the terms of the contract for both the contractor and the business owner to define issues and eventualities that might not otherwise be addressed. This reduces the possibility of a misunderstanding arising in the future.As mentioned further up in this article, it’s required to legally protect both parties, cover important information like fees or timescales and clearly define what’s required from both the business owner and the consultant. As well as all that, there are a few other reasons why you should consider drawing up an agreement for any consultants you might hire:
    It’s good to have a record of all your employment and service agreements for tax purposes and auditsIt makes creating invoices easier for the consultant, as they can refer to the terms of the agreementTo determine data protection and confidentiality clauses

What to include in a consultancy agreement

A typical contract will contain information such as what exactly it is that the consultant is being hired to do, whether the contract is on a fixed-term basis or if it’s ongoing, payment details including any retainer fees, how expenses will be handled, who’s the owner of any intellectual property and whether there’s any confidential information that shouldn’t be disclosed.Here’s a full breakdown of what you may want to include in your consultancy agreement:

The basics

This includes the first and last names of the parties involved or the company name, address and tax identification number. You could give detailed descriptions of the parties and it is common practice to indicate how each party will be referred to in the rest of the document. For example: “Hereinafter referred to as consultant”.

Length of the agreement

You need reassurance that the work will be completed within a reasonable time frame, so you should include a section on the start and end dates.

Description of services to be provided

It’s important to describe exactly what it is you’re expecting the consultant to provide under the contract. Be detailed in your requirements and include as much information as possible to avoid any confusion. You should also explain your commitments to the consultant, for example, that you’re paying a fee for their services.

Payment

The agreement should state what the consultant’s fee is and how it will be paid. Whether it’s in one lump sum when the term ends or they’re being paid per hour, you should detail this clearly in the contract. It’s normal to pay an invoice at the end of the month with the rest of your staff’s wages if that makes life easier. You might also want to outline whether they’re entitled to any additional expenses on top of their fee.

Employment status

Consultant substitution

A consultancy agreement should specify whether or not the contractor can appoint someone else to carry out the work for you on their behalf if they are unable to do so themselves. This is for tax purposes. If you’re OK with this, you may want to highlight that they can’t do so without approval from you first.

Other clients

You should state whether or not you’re happy for the contractor to work for other clients while they’re working for you. When deciding on this, it’s worth considering how detrimental it would be to your business if they were working for one of your competitors at the same time. Remember, though, that allowing them to work for someone else reduces the chance of them having employee status in the eyes of the law, consequently falling within the IR35 parameters. For more on what IR35 means for you as a business owner, read our comprehensive guide to IR35.

Data protection and confidentiality

The agreement should mention this to ensure that the consultant doesn’t disclose your business’ confidential information to a third party.

Ownership of intellectual property

Make sure you include a paragraph stating that the work created by the consultant while working for you belongs to you, not them.

Termination

This is where you outline the circumstances in which either party can terminate the agreement before the services have been completed in full. An example of this could be a breach of contract, whereby the agreement is ended immediately. Or it could state that either party can give a written notice, with details on how the termination will affect the contractor’s fee. You might also want to include some post-termination restrictions, such as non-poaching clauses with regards to clients and other staff members.

Other information

Towards the end of the contract you’ll want to include any miscellaneous information and standard provisions that are found in most employment contracts.

Signatures

Leave space for all parties to sign and date the document at the end of the consultancy agreement.

Once the consultancy agreement is drawn up

Once you’ve written up your contract, you’ll offer it to the other party who will respond in one of three ways. They’ll either negotiate the terms until you both agree or reject the offer – in which case you’ll have to write a more attractive contract or find someone else who’s willing to accept the contract as it is. The best-case scenario is that the other party accepts your offer in full, signs the contract and starts working for you as soon as possible.As you can see, there’s a lot to consider, and because the last thing you need is to be spending your limited time on writing and formatting a consultancy agreement, we’ve drawn up this template, which you can download and adapt for your own use. While we hope this article has given you the confidence you need to write a consultancy agreement, please note that we are not lawyers, and we recommend consulting with your solicitor when drafting this contractual agreement.
Daniel Hogan
Daniel HoganCOO & Co-Founder

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Consultancy Agreement Template

Hiring a consultant? Download our free consultancy agreement template to easily define the terms of the consultant's time with your company.

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