Outsourcing

Nature

The distinction between an employee and an independent contractor can be sometimes difficult to draw.   The following deals with genuine “contractors” who provide services on their own account and are not disguised employees.  Contractors provide services for a set fee and duration under a contract for services.

The form and content of outsourcing contracts are very varied. Contractors can provide flexibility and can be more effective.  Typically, VAT will be payable,  although this will general be reclaimable.  There will be no responsibility for PAYE and National Insurance but there are certain sectors (e.g. in construction industry) where there are obligations to deduct tax on payments to contractors.

Contractors, sub-contractors and agency workers have fewer rights than employees. They are not entitled to receive the minimum wage, rights under Working Time Regulations, rights to paid leave and rights not to be discriminated against.

Some Health and Safety requirements apply in respect of contractors as well as employees.  There is a duty to ensure that Contractor has the appropriate training and ability and that the appropriate health and safety provision is made. There is an obligation to provide relevant information (and training where required) on health and safety issues.

There have been cases where employers have been fined or have been found legally liable in civil claims for damages for failing to ensure contractors’ competence, failures of supervision, failures to ensure safe operation of vehicles, safe loading etc.

Public liability insurance may be required for contractors as liability can arise for their actions or omissions under certain circumstances.  This would not be covered under an employer’s liability policy.  A public liability policy may be required to cover  contractors working away from the business premises.  It is desirable to verify that the Contractors have their own insurance and to ensure that the terms of the contract pass as much risk to the Contractor as possible.

Contracts

The contract should provide for a schedule setting out the works concerned, performance targets and deadlines.  Payments should have an appropriate mechanism.  There should be “penalties” for failure to meet time and quality requirements.

The agreement should set out the Contractor’s responsibilities, the objectives and the scope of the work.   It should specify the resource the Contractor agrees to commit.  It should provide mechanisms for resolving disputes.

Contract for services may contain many of the provisions found in employment contracts.  In particular, it is often desirable to protect confidentiality and intellectual property rights.  There should be a non disclosure agreement where appropriate.