In this post, we’ll discuss what’s unique about the consultant-company relationship, and cover five important questions about paying them.
This article is part of our guide on how to pay contractors.
Why paying consultants demands extra attention
One of the main reasons it’s important to give careful thought to paying consultants is simply the price.
Their expertise, experience, and advice can cost a premium. When they’re top-of-the-line and in high demand, consultants’ time is expensive. If they work directly with the CEO or other members of the executive team, expect their compensation to be even higher.
The second main reason paying consultants is a more sensitive matter is because of the nature of their relationship with your company. Unlike freelancers and consultants (who may still be highly valued contributors to your company), consultants act more as a trusted partner.
They don’t simply perform work tasks over a short period of time and then leave. When there’s good chemistry between a consultant and their client, the conditions are favorable to establish a long-term relationship in which the consultant provides greater value over time.
5 top questions to consider when paying consultants
Don’t dive into paying consultants without first answering these questions.
1. Did we sign a contract?
When working with anyone outside of your company, signing a contract is always step No. 1. The same goes for working with consultants.
A comprehensive agreement should cover compensation, both parties’ expectations and obligations, and how to ensure the relationship is beneficial to each.
Most experienced consultants will likely provide their own written agreement that can stand up in court. This usually details the services they will provide, the scope of the work, their payment rates and requirements, whether they charge a fee for late payments, or if they offer any type of discount.
In addition to the consultants’ agreement, your legal team might insist he or she also signs your company’s standard contractor agreement, which should further clarify the nature of the work relationship and outline other protections.
2. Are company data and information legally protected?
Consultants serve as trusted partners to the company, which often means they have extensive access to sensitive data and/or company secrets. To ensure all of that remains protected, consider also signing the following types of agreements:
- Non-disclosure agreement: An NDA (also referred to as a confidentiality agreement), is a legally binding contract that establishes a confidential relationship between the consultant and your company. By signing an NDA, the consultant is legally prohibited from sharing any sensitive information they may obtain with individuals outside of your company.
- Intellectual property (IP) agreement: An IP agreement establishes the transfer of intellectual property rights from one party to another. If you are hiring the consultant to produce any types of content or materials that you plan to publish or use, you will want to clarify the transfer of IP rights with an IP agreement.
- Non-compete agreement: Some consultants may retain other clients at the same time they work with you. If that’s the case, you may want the consultant to sign a non-compete agreement, which prohibits the consultant from working with companies that are considered competitors, or revealing proprietary information/company secrets to outsiders.
- Data protection agreement: If your consultant will have access to your customers or employee personal data you are required to sign them on a data protection agreement before providing data access.
3. What are the consultant’s payment terms?
Agreeing on payment terms is obviously central to paying consultants.
Some consultants may prefer to be paid by the hour, while others charge a flat rate for providing services across a predefined time period. Sometimes consultants demand a portion of the payment upfront, upon signing the contract. Others may opt for a retainer, in which they receive a fixed monthly fee in exchange for being available to work a minimum number of hours.
When you’ve identified the right consultant and want to move forward, it’s important to check with your finance department that you can accommodate their payment terms—not only in terms of budget, but also in terms of the desired method.
4. Do we have the infrastructure and processes to ensure prompt payments?
If you want to retain the expertise, experience, and advice your consultants have to offer, paying them on time is crucial.
Delayed payments quickly result in friction and frustration which can harm your relationship with the consultant and even lead them to quit. Fortunately, this scenario is easily avoidable with the right tools and processes.
For example, freelance management systems (FMS) are designed to simplify and expedite the process of paying non-payroll workers by automatically approving invoices and issuing payments according to their unique payment terms. An FMS helps ensure consultants are paid in the method and currency they want, within the agreed upon time period, with virtually no manual work on behalf of your managers or administrators.
5. What special requests should we be prepared for?
One unique aspect of working with consultants is that they often have enough leverage to request special forms of compensation from your company. Because of their high demand and value to the companies they work with, consultants may ask for some of the benefits that employees get.
For example, they might request the chance to receive bonuses based on the impact of their contribution. Or, they could ask for stock options, especially if they are involved in the early development of the company.
Whether or not you decide to grant these special requests is up to you. However, providing these forms of compensation could help you foster a greater sense of commitment and improve your chances to retain them for longer.
Leverage the full value of your consultants
The quality of your company’s relationship with the consultants you hire can be easily influenced by how prepared—or unprepared—you are to pay them.
Paying consultants requires dedicating equal attention to meeting their demands, which are often higher than the average freelancer, and to protecting your company. Consultants’ closeness to proprietary company information and data make them both an asset and a liability. Explicitly agreeing on payment terms as well as measures for keeping your company safe are integral to maintaining a healthy and product relationship.