Executive Appointments and Consultancy Arrangements

Employment contracts for executive roles tend to be more complex than a basic contract of employment. This is because there are several statutory and regulatory provisions that need to be factored into the negotiation and drafting of the contract, particularly in the case of a listed company. They may also include restrictive covenants and employee benefits schemes such as share option schemes.

Directors should not be involved in the preparation of their own service agreement, and they should not be involved in discussions about their own remuneration.

A consultancy agreement is used where a consultant (whether on their own account, or through a service company) provides consultancy services to a client. It is drafted on the basis that the consultant is genuinely self-employed rather than an employee or worker of the client.

The arrangement is structured as a contract for services, rather than a contract of employment, and may be an attractive option to both parties due to the structure’s inherent tax advantages.

Whether or not a consultant or contractor is employed or self-employed is important because it will determine:

• The basis on which their income is taxed, and whether or not the client business will need to make appropriate deductions of income tax and NICs when paying the consultant fees
• Whether the consultant will have the benefit of various employment protection rights available to employees (or the more limited rights available to workers), and
• Whether the individual is owed the common law and statutory duties relating to health and safety owed by an employer to its employees, or whether the individual (as an independent contractor) is responsible for their own safety

Consultancy services can also be provided by an individual through a service company.

Identifying and recording the true relationship at the outset will reduce the likelihood of disputes arising later on.