Question

Theresa is a college professor who wants to work for a consulting firm during the summer. She will be working on special projects relating to professional development programs. What advantages might accrue to the consulting firm if the engage-ment is set up as a consulting arrangement rather than an employment contract?

Answer 1

Advantages that might accrue to the consulting firm if the engagement is set up as a consulting arrangement rather than an employment contract are as follows:

• Easy legal arrangements - An employment contract will cover many legal aspects to be enforceable, however a consulting agreement can be customized based on needs of parties. It could be a reason that firm may opt for a consulting arrangement as compared to a employment contract. Employment contract would require proper drafting, which could be in-house or outsourced.

• Avoiding fixed cost over long term - Under an employment contract, the employer has to provide fixed salary to the employee over long term. However, under a consulting arrangement, the consultant would work for a fee which would be mutually agreed by the parties. Fixed salary payments create obligations while fee could be short term payment under many cases.

• Compliance - An employment contract has to be compliant with other applicable laws such as minimum wages act, safety act, gratuity act, immigration and work visa rules, etc. Firm might have to take expert advice in many cases as these may lead to reputation risk for the firm. When we compare the same to a consulting arrangement, there would not be such statutory compliance as these contracts shall be customized.

• Additional functional unit - Many small and mid-sized consulting firms still work without a full-fledged human resource department. Hiring more employees would require a functional unit for human resource management, which might add up to cost.