Managing Business Risks with Contractor Contracts

The latest statistics from the Office for National Statistics reveal that self-employed people have increased to 15% of the workforce in the UK. Certain sectors such as construction, IT and technology are particularly affected by this trend, as working with contractors, freelancers and subcontractors are commonplace.

Benefits of Hiring Contractors or Subcontractors

Hiring a contractor or subcontractor to do a job can be very cost-effective as the company does not have to provide sick pay, holiday pay, maternity/paternity pay, pensions or other benefits.

Contractors and subcontractors also have a wealth of experience and knowledge that are often specific to a certain market or sector, so it’s often an ideal solution for expanding businesses to strengthen their position.

What are the Risks of Hiring Contractors or Subcontractors?

While contractors not being employees have certain financial advantages, companies must be aware that they also have to balance the risks that hiring freelancers can incur. One issue is that freelancers could be mistaken for employees by HMRC. Not being able to prove the opposite could lead to hefty fines and penalties.

Other main risks for businesses include:

• Client ownership: Who owns the client: the contractor or subcontractor?
• Notice periods: Having no notice period in the contract or agreement could help when determining your IR35 status, as employees usually get notice periods but not contractors.
• Payment terms: Contractor contracts must clearly indicate any terms for payment that must be observed.
• Responsibilities and liabilities: Contracts should outline what the contractor can and cannot be liable for.
• Intellectual property ownership: For some sectors, it is key to consider ownership of intellectual property in contractor agreements in order to avoid further issues.

How Can I Manage the Risks of Hiring Contractors or Subcontractors?

By adopting a diligent approach to contractor management and making sure your contractor contracts are thoroughly reviewed, companies can easily manage the risks of hiring a freelancer/contractor, meaning that both parties can benefit from the agreement.

From an HMRC perspective, it’s important to make sure you can differentiate yourself from appearing as an employee by stating the contractor status clearly and have the correct documentation in order to keep HMRC off your back. To do so, it’s essential to cater for the IR35 issue within the contract itself.

Do you have all the correct documentation and contract terms in place? Take the first step towards better protection for your business by getting in touch today.