09 Jul 2021
When employing someone, you need to ensure that their contract reflects their employment status. This may seem like just basic wording and contract formalities, but these forms of employment are important.
The employment status you choose will have a huge impact on the way they work, as each carries different rights and entitlements. The employment status that you choose will go a long way towards defining your relationship with your staff.
If you’re running a small business, it’s important to understand different employment statuses so you can choose the right one.
If you don’t choose the correct employment status, it could make your life difficult further down the line. You could commit your company to offering more employment security than it can really afford.
So let’s see what the difference between worker and employees are, how to choose the tight employment status and how to stay compliant.
What is employment status?
A person’s employment status defines employment rights and protections the law entitles them to whilst at work.
This, therefore, determines what they require from the employer.
Employees will have different rights depending on their employment status. It’s important for you to understand the different forms of employment status so you can use the right one at the point of hire.
What are the three kinds of employment status?
To help employees and employers understand what is expected in their working relationship, there are different types of employment status.
There are three different types of employment status:
- Employee: anyone working under a contract of employment.
- Worker: the most casual type of employment.
- Self-employed/independent contractors: they are in business on their own account and are solely responsible for its success.
Both you and your employees need to know their rights and responsibilities, so it’s important to be sure of employment status.
A person's employment status will depend on whether their contract is:
- A contract of service, ie employment (employees).
- A contract for the personal performance of work (workers).
- A contract for services (self-employed).
There are many similarities between the workers and employees. So understanding the difference between employment and worker status is the most important.
We often use contractors for short-term projects, where they can’t necessarily give you guaranteed hours nor you them in the long term . But maybe they have a special skill that you can’t find elsewhere. This example is less common than the other two statuses.
Why is it important to determine employment status?
Employment law will give an employee significantly more rights than someone who is self-employed.
Legislation entitles workers to some rights it gives an employee, but not all. For example, they are not usually entitled to statutory redundancy pay or protection against unfair dismissal.
Employment legislation does not cover self-employed individuals in most cases.
Not only do you need to be sure of the rights they have, but also the roles they play.
Employees are subject to a fairly high level of control, including being subject to disciplinary and capability procedures.
Workers meanwhile have more autonomy as they do not have to accept work that is offered to them.
Whereas self-employed individuals are not subject to any control by the organisation they work for and are free to agree to their own terms of service on a case-by-case basis.
With these in mind, you need to consider the true nature of these relationships to avoid costly tribunal claims, not just their entitlements.
False self-employment tax
One consequence of poorly implementing employment statuses in the UK is false self-employment. This is prevalent in the gig economy.
It is when an employer is working with a self-employed person in such a way that they should actually be an employee. Simply claiming someone is self-employed but treating them as an employee isn’t legally fair, as you don’t offer them the same security as an employee.
If someone is self-employed, but working for an employer in a capacity of employee for that company, the company will be liable.
You will need to pay back tax, National Insurance contributions (NIC), and interest on the time the person was falsely self-employed, as well as associated penalties.
What do the different statuses do?
To avoid employment status disputes and claims of false self-employment, understand what each work status does differently.
This will stop you from either employing someone under the wrong status (and understanding what you can do or expect) from those you already employ.
Here are some roles and expectations of different employees.
An employee is a person who works under the conditions of a contract of employment. To have employee status:
- An individual is obliged to complete work themselves;
- The employer needs to be obliged to provide the work and the employee is obliged to accept the work; and
- The employer needs to have some control over the way the employee carries out work.
A worker is an individual who is in between employee and self-employed status. This status is the most casual of the three different types of employment status.
- They have an arrangement to perform work or services;
- They have to turn up for work even if they don’t want to;
- They cannot subcontract their work out to other people; and
- They aren’t doing the work as a limited company (as this would make them self-employed).
Typically, those within the gig economy (casual workers and zero-hour contract workers), agency workers, and seasonal workers all fall under worker status.
A person is self-employed if they run their own business and are solely responsible for its success. They have a contract with their client/clients, which outlines obligations or rights they have in relation to the person who pays them for that work.
You can usually tell that someone is self-employed if:
- They don’t get holiday or sick pay when they’re not working.
- They give out ‘quotes’ for their work.
- They submit invoices once their work is done.
Basic employment rights for each employment status
The rights include those with full-time employment status and also part-time. They will just accrue differently. Employee rights include:
- Statutory Sick Pay (SSP).
- Statutory Redundancy Pay (SRP).
- Statutory maternity, paternity, adoption and shared parental leave and pay (workers don’t receive leave – just the pay).
- Protections against unfair dismissal.
- Minimum notice periods.
- The right to request flexible working.
Law entitles workers to several core employment rights, such as the national minimum wage and regulations on working time. Including rest and paid annual leave, which is also available to the wider category who qualify as workers. These rights entitle workers to:
- The National Minimum Wage.
- Paid holiday.
- Protection against unlawful discrimination.
They are not protected by the employment rights enjoyed by employees, simply because they don’t have an ‘employer’ in the same way.
Expert support on contracts and documentation with Croner
You can find a range of other helpful features to assist you with this matter:
● Our contracts and documentation services are legally binding and help your business get the best from employees.
● Some guides we have included a sample contract of employment, general employment contract advice, and a break of an employment contract.
To find out more about our business documentation services you can call us for immediate guidance on 01455 858 132.
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