Do you work with independent contractors in your business?

Many SME businesses like to offer a range of services to their clients, with the aim of remaining the preferred go-to provider. At the same time they usually want to avoid taking on a large staff in order to provide all those services. That would simply not be feasible for many business owners, especially at a time when costs need to be tightly controlled.

I’m finding that a business model which seems to be increasingly favoured is for a business to work with a number of independent providers who offer a range of services complementary to the main business. This allows that business to offer added value to its clients – so they will be less tempted to go to a competitor who can offer more. Unfortunately, what I also see is that many of these arrangements are on an ad hoc basis, often not documented or only a few points in an email.

What such businesses don’t appreciate is that, by working without a proper written agreement in place with their independent contractors, they are opening themselves up to a number of potential risks. It is always better to set out clearly all the relevant details of the services to be provided – what, where, when, fee and so on, but there are other issues which can be addressed:

• They are introducing the independent contractor to their clients. Would they be happy for that contractor to approach their clients direct and cut them out in future?

• Are any of those independent contractors involved in creating anything for the business e.g. designs, software, websites, artwork, copy or other materials? If so, is it acceptable for the contractor to retain ownership of any intellectual property rights? Might the business want to be in a position to pass such rights on to its clients in some cases? (Does the business already do that in its agreements with clients even if it does not have a corresponding agreement in place with its independent suppliers?)

• Are they satisfied that the arrangement with the independent contractor is clearly one of self-employment and that they are not tending towards anything that might result in that contractor being treated as an employee for tax and national insurance purposes? It is not simply a question of what those involved call the relationship - a range of factors come into play, but the downside of getting it wrong could be a hefty bill from HMRC.

• If the independent contractor delivering the service on behalf of the business does something wrong and causes a loss to the client, the client will turn to the business to make good that loss. Will the business be able to bear that liability regardless of whether it can recover that liability from the contractor? Has any limitation of liability or insurance cover been agreed?

If your business uses independent contractors to deliver services, and you would like help in identifying the issues for your business and preparing an agreement to address those concerns, please contact me.

Sue Mann

Commercial solicitor, Birmingham

0845 003 5639