Guide

Employment status

Workers and employees: the differences

All employees are entitled to employment protection rights - though some rights require a minimum period of continuous service.

A number of core rights, such as the national minimum wage and regulations on working time, including rest and paid annual leave, are also available to the wider category who qualify as workers.

Contracts

A person's employment status will depend on whether their contract is:

  • a contract of service, ie employment (employee)
  • a contract for the personal performance of work (worker)
  • a contract for services (self-employed).

Employee: An employee is someone who works for you under the terms of an employment contract. A contract of employment could be written, oral or implied. Read more on the employment contract.

Worker: The category of worker is wider and includes any individual person who works for you, whether under a contract of employment or other type of contract, but is not self-employed. This category can include casual workers, agency workers or some freelance workers but the terms of the contract will determine their employment status.

The law

For the purposes of income tax and National Insurance contributions (NICs), the agency (when acting as an employment business) providing an agency worker or casual worker is responsible for operating PAYE (Pay As You Earn) and accounting for NICs for that worker.

If there is a dispute about employment status and employment rights (or taxation), this can ultimately only be decided by the courts. The courts have devised a number of tests which examine the individual's circumstances and consider all aspects of the relationship - including what a contract may or may not say - to establish employment status.

There are five key tests the courts will consider:

  • control - whether you as an employer can instruct them how and which tasks to perform
  • integration - whether they are an integral part of your organisation
  • mutuality of obligations - whether they are obliged to carry out the work offered, and whether you are obliged to offer work to them
  • substitution - whether someone else can be sent by the worker to do the job
  • economic reality - whether they are in business on their own account, eg where they bear the financial risks of failure to deliver the service or can profit from their own sound management of the task

Recent trends have been towards the application of a 'multiple test' which takes account of all relevant factors. However, if you are unsure of the employment status of someone who works for you or have concerns, you should seek advice.