Working out if you or someone you want to engage is going to be employee or not is confusing. But someone's employment status is actually very important to know for a number of reasons .
First of all, a person's tax status is not necessarily the same as their legal employment status. This makes little sense to most people, but that is the way things stand in the UK. Confusing? Yes, most certainly. Unhelpful? Yes, most evidently.
From a tax perspective, an individual is either employed or self-employed; there is no third category. If an individual is not regarded as an employee for tax purposes, an employment tribunal may still determine that they are an employee and therefore eligible to bring a claim e.g. for unfair dismissal or redundancy, and vice versa.
For employment law purposes, an individual who provides work or services for another person may be:
1. A worker, in which case they will have certain rights under employment law;
2. An employee, in which case they will have additional rights under employment law (e.g. unfair dismissal, maternity leave and redundancy rights); or
3. Neither a worker nor an employee (i.e. the individual is self-employed, or an independent contractor), in which case they will have no rights under employment law.
All individuals who have employee status also fulfil the statutory definition of a 'worker' for the purpose of the statutory protections that are accorded to that wider category of working individuals. However, not all workers will meet the definition of 'employee'. It follows that, even if an individual does not qualify for employee status, they may still qualify as a 'worker'.
Sometimes, as with agency workers, a worker may have two potential employers and it may not be clear whether they are employed by either one (or both) of them.
The following is a list of factors that can help determine employment status of individuals. The factors are not conclusive and it is advisable also to check:
The BEIS's Guidance on Employment status and rights: checklist for employers and other engagers; and
The HMRC's employment status website.
Factors pointing towards employee status | Factors pointing towards worker status | Factors pointing towards self-employed status |
| Mutuality of obligation, i.e. employer pays wage in return for personal service. This is a condition of employee status. | Is not generally required to make themselves available for work but should do work they have agreed to. | |
| Individual is employed to do the work themselves (i.e. provides personal service. This is a condition of employee status. However, limited right of substitution may not preclude individual from being employee. | Individual provides personal service. This is a requirement of worker status. However, limited right of substitution may not preclude individual from being worker. | Individual does not have to provide personal service. However, where a consultant’s value to the client is their personal expertise, the client may insist on personal service. This may make it more likely that the consultant is a worker. |
| Employer, manager or supervisor has extensive control over individual’s workload and how their work should be done. A sufficient level of control by the employer is a condition of employee status. | Individual has a substantial amount of freedom over where, when and how much they work. May be under a degree of control from the employer when they are working (e.g. subject to a recommended route, required to wear a uniform, rated by service users and subject to a penalty if they receive poor ratings, told to smile with their greeting). | Individual has significant freedom in when, where and how they work. |
| Employer is not a client or customer of the individual’s business. This is a requirement of worker status. | ||
| Individual is required to work regularly unless they are on leave. Individual can expect work to be consistently available. | Individual’s work is often more casual, e.g. their work is less structured or they do not have regular guaranteed hours. | Individual works on specific projects or not at all. |
| Individual is required to do a minimum number of hours and can expect to be paid for time worked. Individual is paid a regular wage or salary. | Individual is more likely to be paid for completing a task, and to take the risk that it may take longer than anticipated. | Individual is more likely to be paid for completing a task, and to take the risk that it may take longer than anticipated. Payment on submission of invoices. |
| Pay more likely to be negotiated at start of contract between employer and employee. Likely to receive regular pay reviews/increases. | Pay more likely to be set by the employer, rather than negotiated by individual. | Individual can negotiate the price for the work, e.g. they are able to work for different clients and charge different fees Able to turn down work if they do not like the fee or price. |
| May receive performance-related pay, e.g. bonus. | ||
| May receive overtime pay. | ||
| Financial risk is limited. | Financial risk is limited. | Responsible for the success or failure of their business and can make a financial loss or a profit. Uses their own money to buy business assets and cover running costs. |
| Individual does not provide or use their own tools/equipment. | Individual provides own tools/equipment. | Individual provides own tools/equipment. |
| Individual is not free to work for others (e.g. competitors). | Individual is not tied to the employer, i.e. free to work for others (including competitors). | Individual is not tied to the employer, i.e. free to work for others (including competitors). |
| Employer monitors attendance and hours of work. |
| Individual is an integral part of the business, e.g.: —subject to company disciplinary procedure and other procedures and policies —participates in staff training and events —has an employee (as opposed to a visitor or temporary ID) pass to the employer's premises. | Individual more likely to be worker (than self-employed) if they are an integral part of the business, e.g. assisting other members of a team or subject to company disciplinary procedures. | Individual is not integrated into the client’s business (for example no company email address, not subject to disciplinary proceedings). |
| Individual does not tend to actively market their services as someone who regards themselves as self-employed to customers and clients. | ||
| Receives benefits, e.g. subsidised gym membership, medical expenses insurance. | ||
| Employed for tax purposes (i.e. employer makes PAYE deductions for income tax and National Insurance contributions (NICs). | Employed for tax purposes (i.e. employer makes PAYE deductions for income tax and NICs. | Self-employed for tax purposes (i.e. responsible for payment of income tax and NICs). |
Legal Notice:
Publisher: Atkins-Shield Ltd: Company No. 11638521
Registered Office: 71-75, Shelton Street, Covent Garden, London, WC2H 9JQ
Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only.
E&OE
Atkins-Shield Ltd © 2023