Eak! This is legal but not best practice. Out of curiosity is this being done because the Clerk is working very few hours and therefore the council doesn't want to pay the oncosts (tax/pension) etc? If so this is not good enough reason to hire a contractor as the Clerk. This gives very little security for either the Clerk or the Council.
In relation to performance management, it also creates a huge warren of potential problems given the large legal responsibility and remit of a Clerk's position. If this is a temporary thing whilst an employed Clerk is being recruited then it should be OK short term, but not something which should occur long term.