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TAKING ON YOUR FIRST EMPLOYEE: EMPLOYMENT STATUS
Categories of worker
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There are essentially three categories of worker recognised by UK employment law.
These are:
 Employee.
 Worker.
 Self-employed person.
Directors and partners are not separate categories of worker, as these individuals will still
fall within one of the three categories above.
Note that the tax and employment law regimes are separate. This means that a worker
could be classed in one way for tax purposes and another for employment law purposes,
although this will be rare in practice.
Employees
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An employee is employed under a ‘contract of employment’. This includes a contract of
apprenticeship.
This definition may be quite clear where the employee has received a document entitled
‘contract of employment’. Where there is no written contract, or the employee has been
issued with a different type of contract, the position will require further examination.
It is important to note that, legally, a contract of employment can exist without a written
document. All the terms of such a contract will be implied and will typically comprise all
verbal agreements and customs and practices between the parties.
Employees benefit from the full protection of employment law, although some
employment law rights do require the employee to have a period of continuous
employment in order to qualify for them, for example, the right to claim unfair dismissal
and the right to a redundancy payment.
Workers
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A number of specific employment law rights are also now available to a wider category of
individuals who qualify as ‘workers’. These include the right to:
 Receive paid annual leave.
 Limit working time to a maximum number of hours per week.
 Have rest breaks.
 Be paid the national minimum wage.
 Not receive less favourable treatment on account of working part-time.
 Be protected from discrimination because of age, disability, gender reassignment,
marriage and civil partnership, pregnancy and maternity, race (including colour,
nationality and ethnic or national origins), religion or belief (including a lack of religion
or belief), sex and sexual orientation.
A ‘worker’ includes not only an individual who works under a contract of employment (i.e.
an employee) but also someone who works under a contract whereby he or she
undertakes to perform personally any work or services for the other party to the contract.
The corresponding definition in the Equality Act 2010 is very similar.
As can be seen from this, every employee will also be a worker but not every worker will
also be an employee.
A worker has less obligation to an employer than an employee does, but he or she still
provides a service personally under a contract to that ‘employer’.
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Self-employed persons
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Self-employed contractors or consultants typically work under ‘contracts for services’ and
are independent and in business of their own account.
Self-employed persons are not employees, although some self-employed persons may
also be workers.
Be aware that just because you issue an individual with a document entitled ‘contract for
services’, ‘self-employed contract’ or ‘consultancy agreement’, this does not mean they
will automatically be classed as self-employed in employment law terms. Employment
tribunals will look beyond the ‘label’ you have attached to the realities of your relationship
with the individual.
The employment status test
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An employment tribunal will take into account a range of factors in deciding whether
someone is an employee or self-employed.
The starting point is whether the ‘employer’ is obliged to provide work for the ‘employee’
or to pay the employee for work done and whether the ‘employee’ is then obliged to
personally perform a reasonable amount of that work.
Secondly, the ‘employee’ must agree to be subject to the control of the ‘employer’ to a
sufficient degree to make that person master.
There must be mutual obligations and a sufficient degree of control in place before the
employment tribunal will look further at the relationship.
There are a number of other important factors in determining the employment status of a
worker and the tribunal will look at all the factors and make a balanced decision.
FACTOR
EMPLOYEE
SELF-EMPLOYED
Is the worker
contracted to provide
the work personally?
Yes.
No. Can send a substitute if
unable to do the work
personally.
Does the worker work
exclusively for you?
Yes.
No. Can do work with different
parties at the same time.
Does the worker work
as part of your
business?
Yes, an integral part of your
business.
No. Works as and when
required.
Does the worker
provide his own
equipment?
You provide all tools and
equipment required.
Provides his own tools and
equipment.
Does the worker
provide his own support
staff?
No. You provide support staff.
Provides own support staff and
pays them directly at own
expense.
Is the worker
responsible for his own
profit and loss?
Not able to increase profits
above wage received.
Ability to enhance profit by
maximising efficiency and puts
errors right at own cost.
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Income tax and
National Insurance
arrangements.
Subject to PAYE rules.
Produces own accounts and
paid on invoice.
Does the worker
receive sick pay and
does he receive regular
wages?
Yes.
No.
Can the worker be the
subject of disciplinary
action?
Yes.
No.
Further information on this topic is available on this web site as follows:
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Fact Sheets – Employment Status
Employment Law Online – Employment Status
Taxation Matters Online – Employers
Taxation Matters Online – Construction Industry
Taxation Matters Online – IR35
Free Documents – Contract of Employment
Free Documents – Consultancy Agreement
This fact sheet was prepared by the Employment Unit of Abbey Legal Protection. It is
intended only as a guide and is not to be regarded as a substitute for consultation with one of
our Legal Advisors, since every case will ultimately turn on its own particular facts and
circumstances. Should you require legal advice please contact Abbey Legal Protection on
0845 0727 727. If you are driving when using the legal advice service, please make
sure it is safe and legal to do so.
Abbey Legal Protection offers a professional Employment Consultancy Service on a wide
range of employment and HR issues including redundancy programmes, termination of
senior employees and directors, in–house training and drafting employment documentation
compliant with the very latest changes in employment law specifically tailored to your
business. We are successful and popular with our clients because we take a customerfocussed approach to each Employment Consultancy assignment.
Abbey Legal Protection is happy to provide a quote for Employment Consultancy work.
Our aim is to quote fees that are fixed and transparent. For further details contact:
Email: [email protected]
Tel: 020 8730 6125
Fax: 020 8730 6002
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