Independent Consulting Bootcamp

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Identify the Independent Contractor Contract
that is most appropriate
to how you will be operating.



Set out below (with a focus on the independent contractor contract) is a series of diagrams that summarize the range of possible contractual relationships - working from Employee at one end of the spectrum to fully Independent Consultant at the other.

Each potential client relationship and consulting assignment will sit somewhere along the continuum or range that is summarized on this page.

My objective in providing this content is simply to offer you a framework as context to assist your understanding of the true commercial relationship between You, the End Client and any third parties involved.



You will need to be very clear on the nature of the commercial relationship between you and your client, and the balance of Risk and Reward between the parties. The balance of Risk and Reward will be different depending on where you are operating on this continuum. For example, it is not uncommon for there to be third party operating between you and the end client acting as either an introducer / agent or as the Lead consultant / contractor.

Care is required to ensure that the independent contractor contract that you will be using fully reflects the commercial reality of the relationship(s).

A number of themes need to be explored before we look in detail at the key components of the independent contractor contract. Once you have reviewed this page I suggest you look at the independent contractor contract samples presented and explained elsewhere on this site. When doing so, I suggest you jump back frequently to this page - it will assist you in understanding the structure and terms of each contract.



At this end of the spectrum (1) there is relatively Low Risk and Low Reward

1. Employee (permanent, typically salaried)

2. Employee (temporary - employed Direct by the employer)

3. Employee (temporary - through an Employment Agency)

4. Contractor (Contracting Indirectly with the end client - through an Agency)

5. Contractor (Contracting Indirectly with the end client - as an Associate of a Lead Contractor)

6. Contractor - (Contracting Direct with the Client - Time and Material Contract)

7. Contractor - (Contracting Direct with the Client - Clearly Defined Deliverables - typically Fixed Price basis)

8. Contractor - Consulting service (full accountability for business outcomes)

9. You as Lead Contractor - using subcontractors to gear up your delivery capacity and capability

At this end of the spectrum (9) there is relatively High Risk and High Reward.
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Immediately below there is a slide that represents each of the nine points on the Risk / Reward spectrum in a common format and structure to aid comparison and to assist you in selecting the appropriate independent contractor contract. Each slide contains a:
  • Diagram reflecting the Basic Contractual Relationship. The Red arrows represent the Financial Flows i.e. Who gets paid What!
  • Representation of where on the scale of Risk and Reward each relationship sits (refer to the sliding arrow towards the bottom of each slide)
In addition, for each slide there is a summary of:
  • The Main Features of this type of relationship
  • The Advantages of operating in this way
  • The Disadvantages associated with operating in this way, focusing on the major Risks

The emphasis is on providing context and a basic understanding of the mechanics of the independent contractor contract.


Viewing Tip:

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independent contractor contract
Main Features
  • You are an Employee; relationships are defined in contract of employment (an independent contractor contract is not applicable)
  • You receive a monthly salary net of tax and other deductions
  • Average salary will be that of a Permanent Employee
  • Employee benefits will be provided as part of the Contract of Employment (Healthcare, Pension etc)

Advantages (+)
  • Job security (possibly) and stability - relatively low risk
  • Employee benefits funded by Employer, e.g. health insurance, pension
  • Training and Development funded by Employer
  • Typically you turn up, perform your duties and you get paid - year in, year out
  • Opportunities for promotion

Disadvantages - Major Risks to consider (-)
  • Low income relative to self employed
  • Lack of control over your own destiny - can cause stress
  • Financial reward not necessarily linked to your performance or effort
  • Limited potential to increase earnings
  • Earnings are received after tax and other deductions
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independent contractor contract
Main Features
  • You are a Temporary Employee and are employed direct by the Employer
  • Relationships are defined in a contract of employment (an independent contractor contract is not applicable)
  • You receive a monthly salary net of tax and other deductions
  • Average salary will be that of an (Internal) Temporary Employee; may be slightly higher than a Permanent Employee (daily equivalent)
  • Very few if any Employee benefits are provided e.g.: Healthcare, Pension
  • Total remuneration package (salary + benefits) likely to be lower than a Permanent Employee

Advantages (+)
  • Flexibility - you can move from one short term employment to another
  • Potential to experience working for a number of different organizations in a relatively short time period
  • If you are unhappy in your current organization then financially you have very little to lose by moving to a new organization - no 'Golden Handcuffs'

Disadvantages - Major Risks to consider (-)
  • Low job security
  • Low income relative to self employed
  • Lack of control over your own destiny - can cause stress
  • Financial reward unlikely to be linked to your performance or effort
  • Limited potential to increase earnings
  • Earnings are received after tax and other deductions



independent contractor contract
Main Features
  • You are a Temporary Employee and are contracted through an Employment Agency (an independent contractor contract is not applicable)
  • You receive a monthly salary net of tax and other deductions
  • Average salary will be that of an (external) Temporary Employee; may be slightly higher than a Permanent Employee (daily equivalent)
  • No Employee benefits will be provided e.g.: Healthcare, Pension
  • Total remuneration package (salary + benefits) likely to be lower than a Permanent Employee

Advantages (+)
  • Flexibility - you can move from one short term employment to another
  • Potential to experience working for a number of different organizations in a relatively short time period
  • If you are unhappy in your current organization then financially you have very little to lose by moving to a new organization - no 'Golden Handcuffs'
  • Agency may find your next role

Disadvantages - Major Risks to consider (-)
  • Low job security
  • Low income relative to self employed
  • Lack of control over your own destiny - can cause stress
  • Financial reward unlikely to be linked to your performance or effort
  • Limited potential to increase earnings
  • Earnings are received after tax, other deductions and Agency commission
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independent contractor contract
Main Features
  • You are a Contractor working through an Agency. The agent introduces you to his client
  • The Agency owns the relationship with the End Client; You do not have a contract direct with the End Client
  • Your relationship with the Agency will be defined in your independent contractor contract
  • You will invoice the Agency for your fees; the Agency will invoice the End Client for a greater amount including Agency commission
  • The Agency will not deduct tax; you receive your fees Gross and manage your own taxation affairs
  • You are not an employee therefore NO Employee benefits will be provided e.g.: Healthcare, Pension
  • Your annual after tax income is likely to be substantially higher than an equivalent Employee (by a multiple of three to four times)

Advantages (+)
  • Substantially greater post tax income relative to an Employee
  • You receive your fee income Gross i.e. you pay Yourself First then You decide when you pay tax
  • Self employed tax deductions are advantageous relative to Employee equivalent
  • Potential to work with a number of different client organizations each year
  • If you are not comfortable with your current contract or client you can choose not to renew the contract and move on
  • The Contracting Agency will find your next role - you have no business development or selling to do (unless you want to clients of your own)

Disadvantages - Major Risks to consider (-)
  • You do not own the relationship with the End Client- contractually you never will
  • The agency takes a cut, typically 20% of the fee income ongoing; you are doing the hard work
  • You are responsible for funding and arranging your own benefits e.g.: Healthcare, Pension
  • There may be gaps between contracts - but you can use this time as you choose e.g.: holidays, professional training



independent contractor contract
Main Features
  • You are a Contractor working through a Lead Consultant. The Lead Consultant introduces you to his client
  • Your relationship with the Lead Consultant will be defined in your independent contractor contract
  • The Lead Consultant owns the relationship with the End Client; You do not have a contract direct with the End Client
  • You will invoice the Lead Consultant for your fees; the Lead Consultant will invoice the End Client for a greater amount including his Margin; this will typically be 100%
  • The Lead Consultant will not deduct tax; you receive your fees Gross and manage your own taxation affairs
  • You are not an employee therefore NO Employee benefits will be provided e.g.: Healthcare, Pension
  • Your annual after tax income is likely to be substantially higher than an equivalent Employee (by a multiple of three to four times)

Advantages (+)
  • Substantially greater post tax income relative to an Employee
  • You receive your fee income Gross i.e. you pay Yourself First then You decide when you pay tax
  • Self employed tax deductions are advantageous relative to the Employee equivalent
  • Potential to work with a number of different client organizations each year
  • If you are not comfortable with your current contract or client you can choose not to renew the contract and move on

Disadvantages - Major Risks to consider (-)
  • You do not own the relationship with the End Client - contractually you never will
  • The Lead Consultant makes a substantial margin, typically equal to your own daily rate
  • You are responsible for funding and arranging your own benefits e.g.: Healthcare, Pension
  • You will be responsible for finding your next client assignment, therefore you will need to undertake business development and selling activities - there will inevitably be gaps between contracts
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independent contractor contract
Main Features
  • You are contracting direct with the End Client; you own the relationship
  • Your relationship with the End Client will be defined in your independent contractor contract
  • Time & Materials basis - You are paid a Daily Rate. The client will probably lead and manage the Project and you will be part of the delivery team
  • You invoice the End Client direct for your fees; there is no Intermediary or middle man
  • You receive your fees Gross and manage your own taxation affairs - this is a genuine Business to Business relationship
  • You are not an employee therefore NO Employee benefits will be provided e.g.: Healthcare, Pension
  • Your annual after tax income is likely to be substantially higher than an equivalent Employee (by a multiple of three to four times)
  • Your annual after tax income is likely to be higher than when working through an Agency (scenario 4) or Lead Consultant (scenario 5)

Advantages (+)
  • You own the relationship with the End Client - You are in control
  • Substantially greater post tax income relative to an Employee, and relative to a Contractor introduced by an Agency or Lead Consultant
  • You receive your fee income Gross i.e. you pay Yourself First then You decide when you pay tax
  • Self employed tax deductions are advantageous relative to the Employee equivalent
  • If you are not comfortable with your current contract or client you can choose not to renew the contract and move on

Disadvantages - Major Risks to consider (-)
  • You are responsible for accurately assessing and scoping your role and will be accountable for defined deliverables within the project
  • You are responsible for funding and arranging your own benefits e.g.: Healthcare, Pension
  • You will be responsible for finding your next client assignment, therefore you will need to undertake business development and selling activities - there will inevitably be gaps between contracts



independent contractor contract
Main Features
  • You are contracting direct with the End Client; you own the relationship
  • Your relationship with the End Client will be defined in your independent contractor contract
  • You are paid a Fixed Price for completing the Project. You will probably lead and manage the Project and be accountable for overall delivery. If the Project overruns then You bear that Risk of under recovery; if it is completed ahead of schedule then you're up on the deal!
  • You will invoice the End Client direct for your fees; there is no Intermediary or middle man
  • You receive your fees Gross and manage your own taxation affairs - this is a genuine Business to Business relationship
  • You are not an employee therefore NO Employee benefits will be provided e.g.: Healthcare, Pension
  • Your annual after tax income is likely to be substantially higher than an equivalent Employee (by a multiple of three to four times)
  • Your annual after tax income is likely to be higher than when working through an Agency (scenario 4) or Lead Consultant (scenario 5)

Advantages (+)
  • You own the relationship with the End Client - You are in control
  • Substantially greater post tax income relative to an Employee, and relative to a Contractor introduced by an Agency or Lead Consultant
  • You receive your fee income Gross i.e. you pay Yourself First then You decide when you pay tax
  • Self employed tax deductions are advantageous relative to the Employee equivalent
  • If you are very experienced you may be able to deliver the Project early and make a premium margin on the contract

Disadvantages - Major Risks to consider (-)
  • You are responsible for accurately assessing, scoping & planning the assignment and will be solely accountable for successful delivery to a Fixed Price (therefore higher risk than Time & Materials basis)
  • You are responsible for funding and arranging your own benefits e.g.: Healthcare, Pension
  • You will be responsible for finding your next client assignment, therefore you will need to undertake business development and selling activities - there will inevitably be gaps between contracts
Top


independent contractor contract
Main Features
  • Full Commercial B2B consulting relationship. Relationship will be defined in an overarching Framework Agreement with each successive Consulting assignment being the subject of a separate independent contractor contract
  • You are paid a Fixed Price for successful delivery of a Program of work. You will probably lead and manage the Program and be accountable for the successful outcome
  • If the Program overruns then You bear that Risk of under recovery; if it is completed ahead of schedule then you're up on the deal!
  • You receive your fees Gross and manage your own taxation affairs - this is a genuine Business to Business relationship
  • Your annual after tax profits are likely to be substantial reflecting the increased risk associated with delivering major Programs that are typically Strategic and enable Business Transformation

Advantages (+)
  • You own the relationship with the End Client - You are in control
  • Substantially greater post tax income relative to scenarios 4, 5, 6 & 7 (reflecting the Risk premium)
  • You receive your fee income Gross i.e. you pay Yourself First then You decide when you pay tax
  • If you are very experienced you may be able to deliver the Program early and make a premium margin on the contract

Disadvantages - Major Risks to consider (-)
  • You are responsible for accurately assessing, scoping & planning the Program and will be solely accountable for successful delivery of the required outcome to a Fixed Price
  • You are responsible for funding and arranging your own benefits e.g.: Healthcare, Pension
  • You will be responsible for finding your next client assignment , therefore you will need to undertake business development and selling activities - there will inevitably be gaps between contracts



independent contractor contract
Main Features
  • Full Commercial B2B consulting relationship. Relationship will be defined in an overarching Framework Agreement with each successive Consulting assignment being the subject of a separate independent contractor contract
  • You engage Sub-contractors to deliver defined work streams or Projects within the overall Program
  • Each of your Sub-contractors will have a separate Subcontractor Contract with your Consulting business
  • Your day to day focus will be on client Relationship Management rather than Delivery
  • You will be paid a Fixed Price for successful delivery of the assignment. You will probably lead and manage the assignment and be solely accountable for the successful outcome
  • Your annual after tax profits are likely to be very substantial reflecting the increased risk associated with delivering major Programs that are typically Strategic and enable Business Transformation AND the margin you make on your Sub-contract resources

Advantages (+)
  • You own the relationship with the End Client - You are in control
  • Substantially greater post tax income relative to all other scenarios - reflecting the Risk premium and Margin on Sub-contractors
  • If you are very experienced you may be able to deliver the Program early and make a premium margin on the contract

Disadvantages - Major Risks to consider (-)
  • You will be responsible for accurately assessing, scoping & planning the assignment and will be solely accountable for successful delivery of the required outcome to a Fixed Price
  • Major challenges associated with creating, mobilising & managing a team of highly skilled and ambitious Sub-contract consultants
  • You will be responsible for finding the next client assignment, therefore you will need to maintain momentum on business development and selling activities
  • There are likely to be overlaps between contracts requiring you to manange multiple client relationships and live assignments concurrently



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