An individual’s employment status will determine their employment rights and their employer’s legal obligations towards them.
There are three types of employment status: employees, workers and those who are self-employed. Of these groups, employees have the most rights and entitlements in comparison to workers and the self-employed.
In reality, there is not always agreement between employers and individuals as to their employment status. This can give rise to disputes and tribunal claims where individuals believe they have not been given their full employment entitlements. Recent case law in this area has also emphasised the importance of employers being aware of the factors which determine employment status.
In this guide, we examine the different types of employment status, the tests that can be used to help establish someone’s status, and what this means for both the individual and you as an employer.
What are the different types of employment status?
A person’s employment status refers to their legal status at work. This is essentially what defines the rights and employment protections that they’re entitled to and, in turn, dictates the responsibilities that you owe to an individual as either their employer or client.
There are three key different types of employment status:
A person will probably be classed as an employee if they’re required to work a minimum number of hours and be paid for that work; to personally undertake the work themselves, without sending someone else in their place; and the employer is responsible for how, when and where that work is carried out. In these circumstances, the employee will be working under what’s known as a contract of service or, more commonly, a contract of employment, typically on either an hourly rate or annual salary paid weekly or monthly.
A worker has an arrangement to perform work or services but, unlike an employee, will not usually be offered regular or guaranteed hours, and has little obligation to make themselves available for work. The ability to accept or reject any offer of work is what typically distinguishes a worker from an employee. However, having accepted work, this must usually be carried out by the worker personally, without the ability to subcontract to someone else, and the employer will often dictate the terms as to how that work is done.
A self-employed person will not be required to be either offered or to accept work, where they will typically put in bids or provide quotes to clients to win a contract. They’ll also usually set their own schedule, having considerable freedom over the hours they work, as well as the way in which that work is carried out, including sending a substitute to do the work for them. Unlike employees who work under a contract of service, a self-employed person will carry out work under a contract for service, providing an invoice for the work that they’ve done upon completion of the job, rather than receiving a salary.
How to determine employment status
While there is no single test for determining employment status, there are three key factors that help to differentiate between employees, workers and the self-employed.
Broadly speaking, employment status can be defined by how dependent a person is on your business for work (mutuality of obligation), how much control you have over them and the work that they do (control), and whether they’re expected to do the work themselves (personal service).
The terms of any written contract will usually be the starting point in deciding a person’s employment status, although it’s the working relationship, and the nature of that relationship in practice, that ultimately determines the status of an individual in the eyes of the law.
Whilst employee status can cover part-time and term-time work, in circumstances where the employment relationship is far more casual, such that the employer isn’t required to provide someone with work and that person isn’t required to do any work, the individual is much more likely to be classed as a worker.
In contrast, a self-employed person is someone who carries on a profession or business on their own account, such as an independent contractor or freelancer, who will be taken on for their specialised knowledge and skills, usually to work on a short-term assignment or project.
Differences in employment rights for employees & workers
Employees are afforded the highest level of protection within an employment law context because they have the weakest bargaining position. In addition to being told when, where and how the work they do is carried out, they’re also often subject to restrictions around working for other people during and after their employment. All employees are workers, but an employee has extra employment rights that don’t apply to workers.
As either an employee or worker, the following employment rights apply equally:
- To be paid at least the relevant national minimum wage
- To receive a statement of written particulars
- To receive an itemised payslip
- To protection against any unlawful deduction from wages
- To the statutory minimum paid annual leave
- To the statutory minimum length of rest breaks
- To not work more than an average 48-hour week, or to opt out of this right
- To protection against unlawful discrimination
- To protection relating to whistleblowing
- To not be treated less favourably when working part-time
- To be accompanied at any grievance or disciplinary hearing
- To statutory sick pay, provided they meet the qualifying requirements.
However, employees benefit from the following additional employment rights, although some of these rights require a minimum length of service to qualify:
- To a minimum notice period on termination of employment
- To protection from unfair dismissal
- To the right to request a flexible working arrangement
- To time off for any emergencies
- To statutory maternity and paternity pay and leave, or adoption and shared parental pay and leave (a worker may be entitled to pay, but not leave)
- To statutory redundancy pay
Self-employed employment rights
In a self-employed scenario, the legal rights and responsibilities between the parties, for example, in a contractor-client relationship, will be largely determined by the terms and conditions of the contract for service, including the right to be paid a fee for the work done.
The self-employed are therefore afforded very little protection in an employment law context. This is because they’re responsible for themselves, acting as their own boss, so will need to ensure they have sufficient financial cover or funds in place for time off work, from taking annual leave, or maternity or paternity leave, to being off work sick.
As a client, you will still have certain other responsibilities toward anyone working for you on a self-employed basis, including the statutory duty to provide a safe and healthy working environment and, in some cases, not to discriminate against them. However, you’ll not be bound by the various other statutory duties that an employer owes to an employee or worker.
Why you need to be clear on employment status
Employment status has been a key area of contention within the gig economy. Modern working arrangements for the likes of Uber drivers and Deliveroo cyclists can be difficult to fit into the traditional employment types. Case law in this area continues to develop.
In some circumstances, you may also find that whilst a person’s employment status is clearly defined when you first hire them, changes in working arrangements can result in their status evolving over time. This could be, for example, where a freelance copywriter starts working solely for your business rather than for any other clients, and has little control over how, when and where they do their work, meaning that they’re more likely to be deemed a worker or employee.
In these circumstances, the original contractor-client agreement may no longer accurately reflect an individual’s employment status. You may also be in breach of your basic employment obligations around, for example, statutory holiday and sick pay, as well as your obligations to HMRC to deduct tax at source and pay National Insurance contributions.
How can employers avoid confusion over employment status?
Below we set out some handy tips on how to avoid confusion over employment status, and minimise any potential disputes where any confusion arises:
Use clear contractual descriptions
Even though the way in which a working relationship is described is not necessarily a reflection of the true nature of someone’s employment status, you should still use clear descriptive headings and terminology within any contract or written particulars, such as ‘employer’ and ‘employee’, or ‘client’ and ‘contractor’, whilst for workers the contract should incorporate terms like ‘casual’, ‘zero hours’ or ‘as required’.
Regularly review your contracts
Many modern businesses will have a mix of individuals with different types of employment status making up their workforce. However, there can often be overlap in how these individuals work, where it’s important to regularly review your contractual relationships to ensure that, in response to any relevant change in working arrangements, the self-employed haven’t evolved into workers with the passage of time.
Be open to discussing employment status
A court or employment tribunal can make a final decision on employment status for employment rights purposes, by looking at how the relationship between the parties works in practice. However, where an individual has raised an issue over their employment status, or is asking for clarification, it’s always best to be open to any discussion about this matter and, where necessary, find an amicable way of resolving their concerns without recourse to legal proceedings. The law can be complex in this area and, where there’s no clear answer, it’s about finding a cost-effective solution.
Seek legal advice
Given that many modern working relationships no longer neatly fit into traditional employment status definitions, it’s easy for confusion to arise and for the parties to proceed under a misapprehension that could result in both significant legal and tax implications. By seeking expert legal advice at an early stage, this can help you to make an informed decision as to the most likely status of an individual.
What employment status is best for your business?
Prior to even hiring someone to work for your business, careful thought should first be given to the type of working relationship that you want to establish — because if you choose the wrong one this can cause various problems further down the line. For example, by providing a contract of employment to benefit from having a permanent member of staff on board, you could commit to offering more employment security than your business can afford. Equally, by hiring someone on a self-employed basis, even though this can provide you with greater flexibility and far less legal obligations, this can create considerable uncertainty.
In order to select the right employment status for your new hire, you’ll need to think about the kind of work you need that person to do based on, for example, whether you need someone on a regular and long-term basis, the length of time the work will take to complete, and whether the work requires a specialised skillset or knowledge, etc. You will then need to go on to consider how the basis upon which you hire someone impacts their rights and your responsibilities. Employees are covered by the full range of statutory employment rights, whilst workers have a more limited range of rights, and the self-employed very few.
A specialist in employment law can help you to plan ahead, and to make informed decisions as to the type of employment status that will work best for your business, with properly drafted contracts that accurately reflect any working arrangement in practice. In this way you can feel confident that the employment status you promise someone is, in fact, what you’re providing.
DavidsonMorris’ business employment lawyers support employers with all aspects of employment contracts and agreements. When determining employment status, tribunals will consider both the relevant contract terms as well as the facts and circumstances of the relationship and working arrangement. Our experts provide guidance to employers to avoid uncertainty around employment status, contract terms and employee entitlements. For specialist advice, contact us.
Employment Status FAQs
What are the different types of employee status?
All employees are workers, but an employee has extra employment rights that don’t apply to workers. A worker provides services personally to an organisation but under an arrangement that’s looser than employment, with no guaranteed or regular hours.
Is an employee the same as a worker?
Employees are a sub-category of worker, but employees are required to work a minimum number of hours and be paid for that work, whilst there’s no obligation for workers to either be offered or accept work.
Does a zero hour contract worker have rights?
Zero hour contract workers have far less rights than employees. However, they’re still entitled to statutory annual leave and to be paid the national minimum wage, although there’s no entitlement to any minimum number of working hours.
Last updated: 3 December 2021