Hiring Self-Employed Service Providers

Every business has certain tasks that need to be performed where it does not make sense to hire an employee to do the work, both because specific skills will be required for a limited period of time, and because it would not be cost-effective to bring on an employee to perform the task. For example, you may want someone to design your company logo, or landscape the property surrounding your office building, or give you legal advice on buying an additional business. In these types of situations, you will probably want to hire an outside service provider to perform the tasks at hand.

When hiring a self-employed service provider, however, you need to be extremely careful not to inadvertently turn your service provider into an employee having all of the rights and protections provided by Irish law. For example, employees are entitled to pay, holiday time and benefits that both meet statutory minimums and are commensurate with those given to employees in the company doing comparable work. In addition, if a person performing services for your business is classified as an employee, then the business will be required to withhold taxes from payments made to the service provider and make PRSI contributions to the government.

It is not enough simply to state in a service agreement that the person doing the work is an independent contractor and not an employee. The courts and applicable government agencies will look at the totality of the situation and determine whether an employer-employee relationship has been established. In doing so, the most important factor they will take into account is control over how and when the work will be performed. With respect to employees, the employer normally has control over what work will be done and how it will be performed. In a contract for services, however, the parties usually agree on the specific task to be performed, but the independent contractor gets to determine exactly how it will be accomplished.

Another factor that is taken into account is whether the person performing the services can do similar work for other businesses, or will work exclusively for your company. If the service provider clearly has his or her own business, which provides its own work materials, hires its own staff and is subject to its own financial risk, then it is safe to say no employment relationship will have been established. In addition, the longer the period covered by the agreement, the more likely it will be considered an employment agreement. Some of the many other factors include the nature of the payment scheme, whether the work is for a set number of hours per week, and the place the work will be performed.

In order to clearly document that an independent contractor relationship has been established, as well as to provide a clear understanding of the rights and responsibilities of each party, a Services Agreement should be signed each time you hire a self-employed service provider. The amount of detail contained in the agreement, as well as in each provision, will depend on the nature of the services to be performed.

The Services Agreement should include the following provisions:
  • Services to be performed
  • Timetable for performance of services
  • Payment amount, procedure and schedule
  • Payment of certain expenses
  • Penalties, if any, for late performance
  • Term of the provision of services
  • Confidentiality
  • Intellectual property
  • Ownership of work product
  • Indemnification
  • Insurance coverage of service provider
  • Force Majeure
  • Dispute resolution
  • Termination

It is very important that the description of the services to be performed is clear and sufficiently specific so that both parties understand what is required of the project. Remember, since the service provider is not an employee, you will not unilaterally control whether additional work will be required to complete any given task. So to avoid misunderstandings about what constitutes completion of the job, make the Services Agreement very clear.

In this respect, you may also want to include specific performance benchmarks along the way, so that everyone is satisfied that the job is going as expected. However, you have to be careful not to include overly detailed direction of how the services should be carried out, or you risk having the relationship characterized as an employer-employee relationship. In that respect, the Services Agreement should also specifically state that the service provider is not an employee, so that he or she cannot claim to be entitled to the same benefits as an employee despite evidence of being an independent contractor.

When the service provider will generate written material or software code, or deliver patentable goods, the Service Agreement should be explicit about who will own the work product of the service provider. In some situations, the service provider may insist on ownership so that he or she can use the material for other jobs. The company, however, will want to have ownership of all copyrights, patents and other intellectual property rights developed in the course of the project to be assigned to it, or at minimum receive a license that cannot be terminated.

This provision will have to be negotiated, and the outcome will depend on the nature of the work being performed, as well as the nature of the company’s and independent contractor’s businesses. In any event, however, the company will want to make sure that it protects the ownership and confidentiality of any intellectual property and trade secrets it provides to the independent contractor in performance of the required services.

In contrast to an employment relationship, a service provider may also have certain of its own duties to provide a safe and healthy work environment, and the Service Agreement may require the service provider to maintain its own insurance to cover job-related accidents and other events. In addition, the Service Agreement may require the service provider to indemnify the company for certain unauthorized actions it might take, and should specifically state that the service provider is not an agent authorized to enter into agreements on the company’s behalf, unless or course this is intended.

In addition to hiring outside persons or businesses to provide specific services to your company, you may from time to time want to retain the services of consultants to provide specific advice. The issues involved and terms of consulting arrangements are similar to arrangements for provision of services, but they are not identical. So we will cover how to hire a consultant in the next section.

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