A notice period is there to protect full-time employees and employers in the event of either one terminating their employment contract. If you are self-employed, you are responsible for your own place of work and tax returns, so you have no legal right to the same benefits as a full-time employee. This includes holiday and sickness pay, maternity leave, or a notice period.
This is one of the drawbacks of setting yourself up as self-employed. However, if you understand the legal implications, you’ll be able to negotiate with your clients regarding a notice period and make your contracts clear and easy to understand.
A notice period implies that you are a full-time employee with all the legal rights of an employee. This goes against IR35, which is a law set by HMRC.
IR35 was set up to stop workers from supplying their services to a company through a sole trader or limited company status when they should in fact be a full-time employee of the company.
If you are working as a limited company and your contract includes notice periods, this may impact you if you are investigated by HMRC. HMRC may decide you are an employee, and you should be paying tax through a PAYE system rather than on a self-employed basis.
If you are employed on a self-employed contract to complete a job, there may still be reasons that you need to get out of the contract early. Examples include sickness or an unforeseen change in your personal situation.
You might also have issues with your client, such as them not paying you on time or delaying the work due to lack of communication or feedback. If you have agreed to complete the work in a set amount of time and the client is delaying, this may leave you in a situation where you need to claim for more payment than initially agreed.
Equally, your client may also want to terminate your contract early – for example if they feel you haven’t delivered to expected standards or they’re no longer able to fund the project you’re working on.
To give yourself and your clients peace of mind, you might want to ask them what they expect in the event of the contract being terminated by either party. This discussion should happen before you draw up the contract and both agree to the terms.
They will probably want to agree that you’ll give them a set number of weeks’ notice if you are going to leave, or a month in some cases. You may also agree that they are able to terminate the contract immediately or with a few days’ notice.
If this is set by the client and included in the contract, it will demonstrate that you are still within IR35 rules.
If you need to terminate your contract quickly, you could agree that you are able to do so as long as you find a replacement who can complete the work in your absence. This is known as a substitution clause. You may have people in mind that you have worked with before and could include in the contract.
In the event of a short-term substitution – where you are unable to carry out the work for a limited time only, or you are subcontracting part of the project – you might want to set out a contract with your substitute supplier and include a ‘no poaching’ clause.
This will stop your substitute supplier from taking your contract or stealing your client. Without a contract in place, you could be cut out of the project altogether.
While you do not have access to certain rights as a self-employed contractor, you can still protect yourself by putting contracts in place. It’s always worth talking to a lawyer before setting out on a contract, especially if you have any uncertainty about the agreement, or are worried that your self-employed status may be brought into question.
If you have more questions about setting your self-employed contracts and notice periods, register to UKBF today and start a new discussion thread to get valuable advice from the UKBF community.