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Employment status

It is well known that there are three types of employment status, ‘employee’, ‘worker’ and ‘self employed contractor’ and that different rights and obligations arise depending on the status, but it can be difficult to categorise and this question troubles Tribunals and employers alike.  However it is essential to be clear about this from the outset of employment and to ensure that both documentation and facts are aligned because the pitfalls of getting it wrong can be costly.

Employee status

An employee is an individual who has entered into or works under the terms of a contract of employment.  The contract can be expressly
agreed or implied by the nature of the relationship. All of the facts will be taken into account, but the three main features of employment are:

•  An obligation to do the work personally, rather than being able to send a substitute.

•  Employer is obliged to provide the work and the employee is obliged to accept the work.

•  Employer has some control over the way the employee carries out the work.

Self-employed status

The self-employed enjoy no statutory employment rights, although they may be protected by discrimination law.

Worker status

Worker status falls somewhere between employee and self-employed contractor.

Workers are entitled to fewer statutory rights than employees, but do have some key legal rights, including protection from discrimination, protection against unlawful deductions from wages and entitlement to the National Minimum Wage.  The Working Time Regulations (WTR) also apply to workers, which means that they are entitled to the rights that flow from this legislation, including paid holiday and rest breaks.

What is the significance of the distinction?

Legal protections: Some core legal protections only apply to employees, for example the right not to be unfairly dismissed and to receive a statutory redundancy payment.

Health and safety: Employers owe employees statutory health and safety protection.  Self-employed contractors may not be covered under these duties, although they will be covered under an employer’s occupier’s liability.

TUPE transfers: Only employees will be automatically transferred to any purchaser of the employer’s business under a TUPE transfer.

Tax: An employer is responsible for deducting tax and national insurance at source from the salary paid to employees.  Self-employed individuals are responsible for paying their own tax and national insurance under self-assessment.

Insurance: An employer must take out employer’s liability insurance to cover the risk of employees injuring themselves at work.  Self-employed contractors are unlikely to be covered by this type of insurance.

Liability: An employer is liable for acts done by an employee in the course of their employment. This type of liability is unlikely to extend to self-employed contractors.