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How does consultancy work?

Posted on from Spring Law Limited

Lucy Prichard-Jones explains the difference between a consultant and an employee and to look at factors which an employer and a potential consultant may take into account when considering a consultancy position.

Considerations for employers

In a traditional employment relationship, the employee enters into an exclusive contract with the employer, however, with a consultancy arrangement, the consultant is typically self-employed and enters into a non-exclusive contract with the employer.

The key differences are set out below:


Key consideration




Employment contract

Consultancy agreement



Consultant (self-employed)




Place of work


Usually flexible


Fixed (plus (discretionary) bonus if appropriate)

Variable (depending on fee sharing / commission arrangements)






No restrictions


Defined, otherwise statutory protection

Defined, absence of statutory protection

Statutory considerations

Protected by a large body of employment legislation

Not protected by employment legislation


Using consultants can be an attractive way for an employer to:

1. expand its business and provide an enhanced offering through the acquisition of senior individuals with key skills

2. acquire a larger client base (through the consultant’s contacts)

3. provide services through the consultant at competitive rates

4. adopt a flexible approach to increasing or reducing ‘man power’ at key times, according to business needs

5. reduce fixed costs and overheads associated with traditional employment and traditional means of accelerating growth.

Employing consultants requires the employer to:

1. adopt a flexible approach to the terms of the consultancy which may conflict with the terms of employment for employees

2. consider having a hot desk arrangement which may be unused when consultants are not present in the office

3. (usually) invest in technology to facilitate remote working

4. facilitate integration and communication between the employer, consultants and employees

5. ensure that the consultant is indeed a consultant and is not deemed to be an employee, otherwise there will be adverse tax consequences (PAYE / NIC)
Note that some consultancies are entirely virtual, in which case, an employer will face slightly different Challenges associated with ensuring the smooth running of the business without a physical presence.

Considerations for potential consultants

Becoming a consultant can be an attractive way to:

1. work flexible hours according to the consultant’s individual wishes and personal demands (work / life balance)

2. work remotely if technology is in place to support such an arrangement

3. generate and leverage work through being part of a recognised and established business vis a vis working entirely independently

4. be part of a team, with the support of the business (colleagues, administrative support etc)

5. remain largely autonomous.

Being a consultant is not for the timid. It requires an individual to:

1. be confident in his / her own abilities

2. be aware that income will vary as remuneration will be based on performance and not by reference to a monthly salary

3. adopt a flexible approach to the terms of the consultancy

4. be highly motivated and well organised as there will be an administration and financial management burden which would otherwise largely fall on the employer

5. maintain a self-employed status so that The Revenue does not rule that the individual is a deemed employee with adverse tax consequences (PAYE / NIC).  Note that The Revenue will look to the substance of the arrangement, rather than the form.   

Is consultancy for you?

Whether as an employer or an individual, making any decision regarding engaging or being engaged as a consultant will require a careful assessment of all the advantages and disadvantages. These advantages and disadvantages will be highly personal to the employer and consultant so it is impossible to give a definitive view. 

In addition, business needs constantly change, so it will be necessary to review the position at regular intervals.  

For an employer, the decision to use consultants will largely be financially driven. For an individual, the decision to become a consultant may also be motivated by financial considerations, but also by personal factors, in the context of a work / life balance. 

Not all businesses or individuals will be suited to consultancy, so it is unlikely that the consultancy model will take precedence over the traditional employer /employee relationship. 

However, in an uncertain financial climate, when businesses are rigorously reviewing their fixed costs, and in instances when individuals may wish to have a greater control over their working life, a consultancy position may become an increasingly attractive alternative for some.

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