This is notoriously a grey area, so I will try to represent my views on the topic as simply as possible.

Consultant

A consultant provides a professional service for his client, there is a business to business relationship i.e. the consultant is typically self employed. The consultant is engaged in order that the client can benefit from a targeted intervention, where the consultant brings a range of specialist skills, experience and often a body of proprietary Intellectual Property to address a particular problem or challenge within the client’s business.

Typically, a consultant will be accountable for the successful delivery of advice, inputs and changes that enable the desired business outcomes or transformation to be achieved. The consultant will command a premium fee relative to the straight contractor, recognizing the professional skill and judgment required to bring about such potentially complex business outcomes. The consultant will have discretion in the way he chooses to approach and deliver the assignment, and typically will lead a group of senior client staff in the delivery of a particular aspect of a business change Programme.

The consultant will be engaged by the client as a Contract Professional i.e. he will be self employed and his relationship with the client will be defined in a contract for professional services.

Contractor

A contractor is likely to be involved in the delivery of change programmes that are very similar to those outlined above for the consultant. A key point of distinction is that a contractor is less likely to be taking a lead role but rather will be responsible for managing a particular component of the assignment, although there will be some exceptions to this.

It is more likely that the contractor will to a greater extent be directed by the senior client staff and will be responsible for delivery of specific work streams or projects within an overarching business transformation Programme.

Key points of distinction and similarity

The potential for confusion arises in part from the fact that both the consultant and the contractor will operate under a relationship that is defined by a legally enforceable contract. On this basis, therefore, it can be argued that the consultant is also a ‘contractor’.

For both the consultant and contractor the commercial nature of the relationship will be similar. They are each enagged by the client as a Contract Professional in order that the client can benefit from their specialist skills and experience without having him on the payroll as an Employee.

This results in a key advantage for the client - since the Contract Professional (consultant / contractor) will not be an employee of the company, the client will have tax flexibility i.e. will not have to make tax deductions and account for these to the Inland Revenue / IRS. The Consultant / Contractor is responsible for his own tax affairs.

Furthermore, the client avoids many administrative burdens associated with employing a member of staff.