Independent Contractor / Consultant / Secondment Agreement
In larger companies, it is not unusual to see employees, independent contractors, consultants, and secondees sitting side by side working together on the same project as a team. They may see each other as “colleagues” yet from a legal and human resource perspective, they are very different types of workers with different legal implications and ramifications.
An employee has a direct employment contract with the host entity and an employment relationship with his/her host employer. Unlike a self-employed worker, employees are usually guaranteed a fixed salary per hour, week, month or other period of time, supplemented by commissions or overtime (if any). The company has direct control the employee’s work by giving instructions. The company also has financial control over the employee and would usually pay the employee directly. Employee income is taxed and usually the company would be required to file the employer tax return with the tax office to confirm how much remuneration has been paid to the employee. The company is also responsible for other employees' benefits, holidays, leave entitlements, medical benefits, insurance, and pensions.
Independent contractor is a legal term that includes all independent workers who are not legally considered as employees. A contractor is a temporary worker for a company and an independent businessman who is self-employed and agrees to sign an agreement to work for the company. The general rule is that a worker is considered a self-employed independent contractor if the company controls only the results and deadline of the work. The contractors would retain the control of the manner of work to be done, including the means and methods used to do the work, the scheduling of the work, the execution of the work, and determining how the setup will be completed within standard and time requirements.
From a legal and tax perspective, the work has been outsourced to independent third parties and there is no need for the company to conduct any tax filings in relation to the contractors. Independent contractors must file their own tax returns and pay their own income tax. The contractors are not entitled to any medical benefits, insurance and other employee benefits from the company. The company will be invoiced by the contractors to pay the agreed fixed fees plus any disbursements on a periodic basis. In addition, independent contractors are free to look for other business opportunities and may work for more than one company.
Independent consultant or advisor is a subset of independent contractors. They are called consultants or advisors rather than contractors because the term more accurately describes the nature of their work. They provide professional or expert advice, advice or services on information or materials in their area of knowledge or training to help the company make decisions or perform tasks. For example, improving efficiency while redefining, eliminating or changing aspects that hinder the overall operation of the company's business. In short, the role of a consultant / advisor is to assess the company's needs and provide professional advice and advice on what needs to be done, while the role of a contractor is usually to actually perform the work.
There is a secondment arrangement when an employee is temporarily relocated by his / her employer to work for a different company, department or location for a period of time (i.e. the secondment period). There are usually the following driving forces behind a secondment:
Secondment helps the secondees to develop a broader perspective on the business and allow them to acquire skills that may prove useful when they return to their usual positions.
From a legal perspective, the secondee will continue to be an employee of the original employer. The company usually enters into a secondment arrangement or agreement with the original employer to reimburse it for the cost of the employee. Many professional firms (e.g. law firms and accounting firms) may charge a premium over the cost of the secondee as a result of the loss of billable hours (which are far higher than the actual cost of the secondee). Alternately, the original employer may end the initial employment agreement with the secondee signing an employment agreement with the new company. In some cases, if the original employment contract is put on hold, a dual employee arrangement can result.
As a result of these complex arrangements, secondment raises important legal issues. Some of the issues that should be addressed in the secondment agreement are as follow:
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