A Guide To Employment Status
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Understanding employment status is one of the most important issues for employers and organisations. Whether an individual is classed as an employee, a worker, a self-employed contractor or a volunteer can affect their legal rights, tax obligations and the responsibilities owed to them.
Getting employment status wrong can lead to costly disputes, employment tribunal claims, tax liabilities and regulatory issues.
This guide explains the key differences between employment statuses, the rights associated with each, and what organisations should consider when engaging volunteers.
On this page:
Why Employment Status Matter
Employment status determines:
- The legal rights an individual is entitled to receive
- An employer’s obligations and responsibilities
- Tax and National Insurance arrangements
- Pension obligations
- Health and safety duties
- Liability for workplace actions and conduct
Importantly, employment status is determined by the reality of the working relationship rather than simply the label used in a contract.
Employee Status
An employee is someone who works under a contract of employment.
The contract may be:
- Written
- Verbal
- Implied by the conduct of the parties and the nature of the working relationship
Employees benefit from the widest range of statutory employment rights and protections.
Key Characteristics of Employee Status
Typically, an employee will:
Be Required to Perform the Work Personally
The individual is expected to carry out the work themselves and cannot usually send someone else in their place.
Have Mutual Obligations
The employer is expected to provide work (or pay), and the employee is expected to perform that work.
Be Subject to Employer Control
The employer generally has the right to control:
- What work is carried out
- How it is performed
- When it is performed
- Where it is performed
The greater the level of control, the more likely an employment relationship exists.
Employee Rights
Employees may be entitled to:
- Protection from unfair dismissal (subject to qualifying service requirements)
- Statutory redundancy pay
- Statutory sick pay
- Family-related leave and pay
- Protection from discrimination
- National Minimum Wage
- Paid annual leave
- Protection against unlawful deductions from wages
- Rights under TUPE
- Pension auto-enrolment (where eligible)
Worker Status
Worker status is often described as sitting between employee status and self-employment.
Workers have fewer rights than employees but still benefit from several important legal protections.
Key Characteristics of Worker Status
A worker will usually:
- Perform work personally
- Have a contractual relationship with the organisation
- Not operate a fully independent business
- Have less mutual commitment than an employee
Many casual workers, agency workers and individuals working under flexible arrangements may fall into this category.
Worker Rights
Workers are generally entitled to:
- National Minimum Wage or National Living Wage
- Paid annual leave
- Rest breaks and working time protections
- Protection against unlawful deductions from wages
- Protection from discrimination
- Whistleblowing protection in certain circumstances
- Pension auto-enrolment (where eligible)
However, workers do not generally qualify for rights such as:
- Unfair dismissal protection
- Statutory redundancy pay
- Statutory notice rights
Self-Employed Contractors
Self-employed individuals operate their own business and provide services to clients rather than working as employees or workers.
The contractual relationship is usually governed by commercial terms rather than employment law.
Key Characteristics of Self-Employment
A self-employed contractor will often:
- Decide how and when work is completed
- Provide services to multiple clients
- Bear financial risk
- Invoice for work completed
- Supply their own equipment
- Be free to send a substitute to carry out the work
No single factor is decisive, and the overall relationship will be considered.
Employment Rights
Self-employed contractors do not usually benefit from employment rights such as:
- Unfair dismissal protection
- Redundancy pay
- Paid annual leave
- Statutory sick pay
However, they may still be protected by anti-discrimination legislation in certain circumstances.
The Practical Importance of Employment Statu
Employment Rights
The distinction between employment statuses affects which legal protections apply.
For example, only employees generally qualify for:
- Unfair dismissal claims
- Statutory redundancy pay
- Certain family-related rights
- Statutory minimum notice periods
Health and Safety
Employers owe significant health and safety obligations to employees and workers.
The precise extent of those obligations may vary depending on the nature of the relationship and workplace arrangements.
Self-employed contractors may also be protected under wider health and safety legislation and occupiers’ liability obligations.
TUPE Transfers
When a business changes ownership or services transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), employees generally transfer automatically to the new employer.
Worker and self-employed contractor status can create more complex legal issues and should be assessed carefully.
Tax and National Insurance
Employers are responsible for deducting:
- Income Tax
- National Insurance Contributions
through PAYE for employees.
Self-employed individuals are generally responsible for managing their own tax affairs through self-assessment.
Incorrect status determinations can lead to significant tax liabilities and HMRC investigations.
Employer's Liability Insurance
Most employers are legally required to hold employer’s liability insurance for employees.
Different arrangements may apply to contractors and genuinely self-employed individuals.
Organisations should ensure their insurance arrangements reflect the reality of their workforce.
Liability for Workplace Conduct
Employers can be held legally responsible for actions carried out by employees in the course of their employment.
This is known as vicarious liability.
The same level of liability may not apply to genuinely self-employed contractors, although each situation will depend on the circumstances.
Volunteers and Employment Status
The legal status of volunteers can be complex.
While many volunteer arrangements are genuinely voluntary, some relationships may unintentionally create legal obligations similar to employment.
The more structured and contractual a volunteering arrangement becomes, the greater the risk that employment rights could arise.
Reducing the Risk of Creating an Employment Relationship with Volunteers
Organisations engaging volunteers should take care to ensure arrangements remain genuinely voluntary.
Practical steps include:
Avoid Paying Wages
Any payments should normally be limited to genuine out-of-pocket expenses.
Expenses should be clearly identified as reimbursement rather than payment for services.
Limit Benefits and Perks
Providing significant benefits or rewards could suggest that the volunteer is receiving remuneration.
Keep Arrangements Flexible
Volunteers should generally be free to:
- Choose when they volunteer
- Refuse tasks
- Stop volunteering without penalty
Use Appropriate Language
Avoid terminology that suggests a contractual relationship.
For example, use wording such as:
- “Volunteer role”
- “Suggested hours”
- “Typical activities”
rather than contractual terms such as:
- “Required hours”
- “Salary”
- “Employment”
Treat Volunteers Fairly
Although volunteers may not have employment rights, organisations should still have fair procedures for:
- Raising concerns
- Resolving disputes
- Managing expectations
This can help maintain positive relationships and reduce the risk of legal issues.
Frequently Asked Questions
What is the difference between an employee and a worker?
Employees generally have a wider range of legal rights, including protection from unfair dismissal and redundancy pay. Workers have more limited rights but are still entitled to protections such as paid holiday and the National Minimum Wage.
Can someone be self-employed if they only work for one organisation?
Possibly, but working exclusively for one organisation may indicate employee or worker status depending on the wider circumstances. Employment status is determined by the reality of the relationship rather than the label used.
Does a written contract determine employment status?
Not necessarily. Employment tribunals and courts will look at the actual working arrangements as well as any written agreement.
Are volunteers entitled to employment rights?
Most volunteers are not employees or workers. However, organisations should be careful not to create arrangements that resemble employment relationships.
Can a self-employed contractor bring an employment tribunal claim?
In some circumstances, yes. Disputes often arise where an individual has been labelled as self-employed but argues that they are actually a worker or employee.
Why is employment status important?
Employment status affects legal rights, tax obligations, pension duties, insurance requirements, health and safety responsibilities and potential liability for workplace conduct.
What should employers do if they are unsure about employment status?
Employers should seek legal advice before engaging individuals under arrangements where status may be unclear. Reviewing contracts and working practices at an early stage can help avoid disputes and potential liabilities later.