Employment status

Overview

In employment law a person’s employment status helps determine:

• their rights
• their employer’s responsibilities

The main types of employment status are:

• worker
• employee
• self-employed and contractor
• director
• office holder

Contact Acas (or the Labour Relations Agency in Northern Ireland) for advice about employment status, employee rights or employer responsibilities.

Worker

A person is generally classed as a ‘worker’ if:

• they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written)
• their reward is for money or a benefit in kind, eg the promise of a contract or future work
• they only have a limited right to send someone else to do the work (subcontract)
• they have to turn up for work even if they don’t want to
• their employer has to have work for them to do as long as the contract or arrangement lasts
• they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client

Employment rights

Workers are entitled to certain employment rights, including:

• getting the National Minimum Wage
• protection against unlawful deductions from wages
• the statutory minimum level of paid holiday
• the statutory minimum length of rest breaks
• to not work more than 48 hours on average per week or to opt out of this right if they choose
• protection against unlawful discrimination
• protection for ‘whistleblowing’ - reporting wrongdoing in the workplace
• to not be treated less favourably if they work part-time

They may also be entitled to:

• Statutory Sick Pay
• Statutory Maternity Pay
• Statutory Paternity Pay
• Statutory Adoption Pay
• Shared Parental Pay

Workers usually aren’t entitled to:

• minimum notice periods if their employment will be ending, eg if an employer is dismissing them
• protection against unfair dismissal
• the right to request flexible working
• time off for emergencies
• Statutory Redundancy Pay

Casual or irregular work

Someone is likely to be a worker if most of these apply:

• they occasionally do work for a specific business
• the business doesn’t have to offer them work and they don’t have to accept it - they only work when they want to
• their contract with the business uses terms like ‘casual’, ‘freelance’, ‘zero hours’, ‘as required’ or something similar
• they had to agree with the business’s terms and conditions to get work - either verbally or in writing
• they are under the supervision or control of a manager or director
• they can’t send someone else to do their work
• the business deducts tax and National Insurance contributions from their wages
• the business provides materials, tools or equipment they need to do the work

Employee

An employee is someone who works under an employment contract.

Employment rights

All employees are workers, but an employee has extra employment rights and responsibilities that don’t apply to workers who aren’t employees.

These rights include all of the rights workers have and:

• Statutory Sick Pay
• statutory maternity, paternity, adoption and shared parental leave and pay (workers only get pay, not leave)
• minimum notice periods if their employment will be ending, eg if an employer is dismissing them
• protection against unfair dismissal
• the right to request flexible working
• time off for emergencies
• Statutory Redundancy Pay

Some of these rights require a minimum length of continuous employment before an employee qualifies for them. An employment contract may state how long this qualification period is.

Working out employment status for an employee

Someone who works for a business is probably an employee if most of the following are true:

• they’re required to work regularly unless they’re on leave, eg holiday, sick leave or maternity leave
• they’re required to do a minimum number of hours and expect to be paid for time worked
• a manager or supervisor is responsible for their workload, saying when a piece of work should be finished and how it should be done
• they can’t send someone else to do their work
• the business deducts tax and National Insurance contributions from their wages
• they get paid holiday
• they’re entitled to contractual or Statutory Sick Pay, and maternity or paternity pay
• they can join the business’s pension scheme
• the business’s disciplinary and grievance procedures apply to them
• they work at the business’s premises or at an address specified by the business
• their contract sets out redundancy procedures
• the business provides the materials, tools and equipment for their work
• they only work for the business or if they do have another job, it’s completely different from their work for the business
• their contract, statement of terms and conditions or offer letter (which can be described as an ‘employment contract’) uses terms like ‘employer’ and ‘employee’

If most of these don’t apply, you should work out if the person is self-employed.

Employee shareholders

An employee shareholder is someone who works under an employment contract and owns at least £2,000 worth of shares in the employer’s company or parent company.

Employment rights

Employee shareholders have most of the same employment rights as workers and employees.

They also have the right to collective redundancy consultation and transfer of undertakings (TUPE) - this protects the employee’s terms and conditions when the business is transferred to a new owner.

Employee shareholders don’t have these rights:

• protection against unfair dismissal - apart from dismissal on grounds of discrimination and in relation to health and safety
• statutory redundancy pay
• the right to request flexible working - except in the 2 weeks after returning from parental leave
• certain statutory rights to request time of for training

Employee shareholders must give 16 weeks notice if they want to come back early from maternity leave, additional paternity leave and adoption leave.

Employers can choose more generous employment rights than the statutory ones.

Tax relief and obligations

Employee shareholders can get tax relief on the first £2,000 of shares but also have to pay tax on buying and selling shares.

HM Revenue and Customs (HMRC) has further guidance on tax relief for employee shareholders.

Applying for employment shareholder jobs

Anyone can apply for an employee shareholder job.

People claiming Jobseeker’s Allowance don’t have to apply for an employee shareholder job that Jobcentre Plus have told them about.

Existing employees don’t have to accept a change to an employment contract to become an employee shareholder if they don’t want to.

Offering employment shareholder status

Employers must following certain rules when offering employment shareholder status to their employees.

Self-employed and contractor

A person is self-employed if they run their business for themselves and take responsibility for its success or failure.

Self-employed workers aren’t paid through PAYE, and they don’t have the employment rights and responsibilities of employees.

Employment rights

Employment law doesn’t cover self-employed people in most cases because they are their own boss.

However, if a person is self-employed:

• they still have protection for their health and safety and, in some cases, protection against discrimination
• their rights and responsibilities are set out by the terms of the contract they have with their client

Working out if someone is self-employed

HM Revenue and Customs (HMRC) may regard someone as self-employed for tax purposes even if they have a different status in employment law.

Employers should check if a worker is self-employed in:

• tax law - whether they’re exempt from PAYE
• employment law - whether they have an employee’s rights

Checking if they’re exempt from PAYE

Someone is probably self-employed and shouldn’t be paid through PAYE if most of the following are true:

• they’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit
• they can decide what work they do and when, where or how to do it
• they can hire someone else to do the work
• they’re responsible for fixing any unsatisfactory work in their own time
• their employer agrees a fixed price for their work - it doesn’t depend on how long the job takes to finish
• they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
• they can work for more than one client

There are special rules for businesses supplying workers, eg an employment agency.

Checking their employment rights

Someone is probably self-employed and doesn’t have the rights of an employee if they’re exempt from PAYE and most of the following are also true:

• they put in bids or give quotes to get work
• they’re not under direct supervision when working
• they submit invoices for the work they’ve done
• they’re responsible for paying their own National Insurance and tax
• they don’t get holiday or sick pay when they’re not working
• they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’

Contractors

A contractor can be:

• self-employed
• a worker or an employee if they work for a client and are employed by an agency

There’s a special scheme for self-employed contractors and sub-contractors working in the construction industry called the Construction Industry Scheme (CIS).

If someone becomes self-employed

A worker must tell HMRC if they become self-employed.

Director

Company directors run limited companies on behalf of shareholders.

Directors have different rights and responsibilities from employees, and are classed as office holders for tax and National Insurance contribution purposes.

If a person does other work that’s not related to being a director, they may have an employment contract and get employment rights.

Office holder

A person who’s been appointed to a position by a company or organisation but doesn’t have a contract or receive regular payment may be an office holder. This includes:

• statutory appointments, eg registered company directors or secretaries, board members of statutory bodies, or crown appointments
• appointments under the internal constitution of an organisation, eg club treasurers or trade union secretaries
• appointments under a trust deed, eg trustees
• ecclesiastical appointment, eg members of the clergy

Office holders are neither employees nor workers. However, it’s possible for someone to be an office holder and an employee if they have an employment contract with the same company or organisation that meets the criteria for employees.

Working out employment status for an office holder

Someone is likely to be an office holder if most of these statements apply to them:

• there is no contract or service agreement relating to their appointment
• their duties are minimal, and are only those required under the relevant statute, constitution or trust deed
• they don’t get a salary or any other form of regular payment for their services
• the only payment they get is a voluntary payment (honorarium), regardless of the work they do - tax and National Insurance are deducted by the appointing body
• they’re effectively working as an independent office, and are not under the close supervision or control of the appointing body

Legal decisions on employment status

A court or employment tribunal (known as an industrial tribunal in Northern Ireland) can make a final decision on employment status. They’ll look at how the employment relationship between the person and the business works in practice.

HM Revenue and Customs (HMRC) may regard someone as self-employed for tax purposes. An employment tribunal or court may still make a decision that they are a worker or employee for employment rights purposes.