Employment Status: Types, Rights & Legal Guidance

employment status

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An individual’s employment status will determine their employment rights and their employer’s legal obligations towards them.

There are three types of employment status: employees, workers and those who are self-employed. Of these groups, employees have the most rights and entitlements in comparison to workers and the self-employed.

In reality, there is not always agreement between employers and individuals as to their employment status. This can give rise to disputes and tribunal claims where individuals believe they have not been given their full employment entitlements. Recent case law in this area has also emphasised the importance of employers being aware of the factors which determine employment status.

In this guide, we examine the different types of employment status, the tests that can be used to help establish someone’s status, and what this means for both the individual and you as an employer.

 

What is employment status?

 

Employment status determines the rights and responsibilities of individuals in a working relationship, as well as the obligations of employers. In the UK, there are three main categories of employment status: employees, workers, and self-employed individuals. Each status has its own legal implications and governs aspects such as pay, leave entitlements, and termination procedures.

Employees have the most extensive legal rights, including statutory sick pay, redundancy protections, and maternity leave. Workers have fewer rights but are still entitled to minimum wage, holiday pay, and protection from discrimination. Self-employed individuals, on the other hand, generally work under contracts for services and have minimal protections under employment law.

Employers face risks if employment status is not correctly classified. Misclassification can lead to disputes, tribunal claims, and financial liabilities, such as backdated tax or unpaid entitlements. Ambiguity in contracts, working arrangements, or job descriptions can also create issues, particularly where there is a mismatch between the actual working relationship and the contractual terms.

 

Why employment status matters

 

Employment status is an important consideration for UK employers, especially with the rise of the gig economy and non-traditional working arrangements. Roles such as those undertaken by Uber drivers and Deliveroo riders often challenge conventional definitions of employment. Legal rulings in this area continue to evolve, shaping how employment law applies to modern workforces.

Clear classification is essential from the outset to avoid legal, financial and reputational risks. However, even when a person’s employment status is clearly defined at the point of hire, it may change over time as working arrangements evolve. For instance, a freelance copywriter who begins working exclusively for your business, follows strict instructions on how, when, and where tasks are performed, and no longer serves other clients could be reclassified as a worker or even an employee.

In such cases, the original contractor-client agreement may no longer align with the actual nature of the relationship.

Misclassification can result in breaches of statutory rights, such as failing to provide holiday pay, statutory sick pay, or other employment protections. Furthermore, employers may fail to meet obligations to HMRC, such as deducting tax through PAYE or paying National Insurance contributions.

To minimise risks, regular reviews of contracts and working arrangements are vital. Employers should ensure that contracts accurately reflect the true nature of the relationship and seek legal advice if there is any uncertainty. Clarity on employment status helps maintain compliance, avoids costly disputes, and fosters trust between employers and workers.

 

Types of employment status

 

A person’s employment status refers to their legal status at work. This is essentially what defines the rights and employment protections that they’re entitled to and, in turn, dictates the responsibilities that you owe to an individual as either their employer or client.

The key different types of employment status are:

 

Employee

 

A person will probably be classed as an employee if they’re required to work a minimum number of hours and be paid for that work; to personally undertake the work themselves, without sending someone else in their place; and the employer is responsible for how, when and where that work is carried out. In these circumstances, the employee will be working under what’s known as a contract of service or, more commonly, a contract of employment, typically on either an hourly rate or annual salary paid weekly or monthly.

 

Worker

 

A worker has an arrangement to perform work or services but, unlike an employee, will not usually be offered regular or guaranteed hours, and has little obligation to make themselves available for work. The ability to accept or reject any offer of work is what typically distinguishes a worker from an employee. However, having accepted work, this must usually be carried out by the worker personally, without the ability to subcontract to someone else, and the employer will often dictate the terms as to how that work is done.

 

Self-employed

 

A self-employed person will not be required to be either offered or to accept work, where they will typically put in bids or provide quotes to clients to win a contract. They’ll also usually set their own schedule, having considerable freedom over the hours they work, as well as the way in which that work is carried out, including sending a substitute to do the work for them. Unlike employees who work under a contract of service, a self-employed person will carry out work under a contract for service, providing an invoice for the work that they’ve done upon completion of the job, rather than receiving a salary.

 

Zero hour contracts and employment status

 

The employment status of individuals on zero-hours contracts depends on the specific nature of their working relationship with the employer. In the UK, zero-hours contracts do not automatically determine employment status. Instead, the classification as an employee, worker, or self-employed individual is based on the terms of the contract and how the working relationship operates in practice.

Zero-hours workers are most commonly classified as workers. This means they have rights such as being paid at least the National Minimum Wage, entitlement to paid annual leave, protection from unlawful discrimination, and limits on weekly working hours. Workers on zero-hours contracts are not usually obliged to accept work when it is offered, and employers are not required to provide regular work.

In some cases, individuals on zero-hours contracts may be classified as employees if the relationship aligns with the characteristics of employment. This occurs when there are mutual obligations, meaning the individual is required to accept work when it is offered, and the employer is required to provide work. Employees have additional rights, including statutory maternity or paternity leave, protection from unfair dismissal after two years, and statutory redundancy pay.

Although less common, zero-hours contracts could apply to self-employed individuals in situations where they are engaged to perform a specific service and retain control over how and when they work.

 

Contingent workers and employment status

 

Contingent workers are individuals engaged by businesses on a non-permanent basis, often for specific projects or to meet short-term business needs. This group typically includes agency workers, freelancers, independent contractors. While contingent workers offer flexibility for employers, their employment status must still be carefully considered to ensure compliance with employment law.

Agency workers, for instance, have specific rights under the Agency Workers Regulations 2010, including equal treatment to permanent employees in terms of basic working conditions (e.g., pay, working hours) after 12 weeks of continuous service. However, they are not entitled to all employee benefits, such as redundancy pay or unfair dismissal protections.

For freelancers and independent contractors, employers must ensure that the working arrangement does not unintentionally meet the criteria for “worker” or “employee” status, such as control over how, when, and where tasks are completed, or a requirement to work exclusively for the business. Misclassifying contingent workers can lead to disputes, unpaid entitlements, and potential penalties from HMRC for unpaid tax or National Insurance contributions.

Employers should regularly review the status of contingent workers, particularly where their roles or responsibilities change over time. A clear, well-drafted contract that reflects the reality of the working relationship is essential. Where there is doubt, seeking legal or professional advice can help mitigate risks.

 

How to determine employment status

 

While there is no single test for determining employment status, there are three key factors that help to differentiate between employees, workers and the self-employed.

Broadly speaking, employment status can be defined by how dependent a person is on your business for work (mutuality of obligation), how much control you have over them and the work that they do (control), and whether they’re expected to do the work themselves (personal service).

The terms of any written contract will usually be the starting point in deciding a person’s employment status, although it’s the working relationship, and the nature of that relationship in practice, that ultimately determines the status of an individual in the eyes of the law.

Whilst employee status can cover part-time and term-time work, in circumstances where the employment relationship is far more casual, such that the employer isn’t required to provide someone with work and that person isn’t required to do any work, the individual is much more likely to be classed as a worker.

Worker status is therefore much wider than employee status, and can include agency, temporary and zero hours contract workers.

In contrast, a self-employed person is someone who carries on a profession or business on their own account, such as an independent contractor or freelancer, who will be taken on for their specialised knowledge and skills, usually to work on a short-term assignment or project.

 

Differences in employment rights for employees & workers

 

Employees are granted the highest level of protection under UK employment law due to their relatively weaker bargaining position. They are often subject to greater control by their employer, such as being told when, where, and how to carry out their work. Employees may also face restrictions on working for other employers during or after their employment. All employees are workers, but employees have additional legal protections and rights that do not apply to workers.

Both employees and workers share the following employment rights:

 

 

Employees, however, benefit from additional rights, some of which require a minimum period of continuous service:

 

 

These differences underscore the varying levels of protection within UK employment law, highlighting the importance of accurately classifying an individual’s employment status.

 

Self-employed employment rights

 

In a self-employed scenario, the legal rights and responsibilities between the parties, for example, in a contractor-client relationship, will be largely determined by the terms and conditions of the contract for service, including the right to be paid a fee for the work done.

The self-employed are therefore afforded very little protection in an employment law context. This is because they’re responsible for themselves, acting as their own boss, so will need to ensure they have sufficient financial cover or funds in place for time off work, from taking annual leave, or maternity or paternity leave, to being off work sick.

As a client, you will still have certain other responsibilities toward anyone working for you on a self-employed basis, including the statutory duty to provide a safe and healthy working environment and, in some cases, not to discriminate against them. However, you’ll not be bound by the various other statutory duties that an employer owes to an employee or worker.

 

How can employers avoid confusion over employment status?

 

Below we set out some handy tips on how to avoid confusion over employment status, and minimise any potential disputes where any confusion arises:

 

Use clear contractual descriptions

 

Even though the way in which a working relationship is described is not necessarily a reflection of the true nature of someone’s employment status, you should still use clear descriptive headings and terminology within any contract or written particulars, such as ‘employer’ and ‘employee’, or ‘client’ and ‘contractor’, whilst for workers the contract should incorporate terms like ‘casual’, ‘zero hours’ or ‘as required’.

 

Regularly review your contracts

 

Many modern businesses will have a mix of individuals with different types of employment status making up their workforce. However, there can often be overlap in how these individuals work, where it’s important to regularly review your contractual relationships to ensure that, in response to any relevant change in working arrangements, the self-employed haven’t evolved into workers with the passage of time.

 

Be open to discussing employment status

 

A court or employment tribunal can make a final decision on employment status for employment rights purposes, by looking at how the relationship between the parties works in practice. However, where an individual has raised an issue over their employment status, or is asking for clarification, it’s always best to be open to any discussion about this matter and, where necessary, find an amicable way of resolving their concerns without recourse to legal proceedings. The law can be complex in this area and, where there’s no clear answer, it’s about finding a cost-effective solution.

 

Seek legal advice

 

Given that many modern working relationships no longer neatly fit into traditional employment status definitions, it’s easy for confusion to arise and for the parties to proceed under a misapprehension that could result in both significant legal and tax implications. By seeking expert legal advice at an early stage, this can help you to make an informed decision as to the most likely status of an individual.

 

Considerations for employers

 

Prior to even hiring someone to work for your business, careful thought should first be given to the type of working relationship that you want to establish — because if you choose the wrong one this can cause various problems further down the line. For example, by providing a contract of employment to benefit from having a permanent member of staff on board, you could commit to offering more employment security than your business can afford. Equally, by hiring someone on a self-employed basis, even though this can provide you with greater flexibility and far less legal obligations, this can create considerable uncertainty.

In order to select the right employment status for your new hire, you’ll need to think about the kind of work you need that person to do based on, for example, whether you need someone on a regular and long-term basis, the length of time the work will take to complete, and whether the work requires a specialised skillset or knowledge, etc. You will then need to go on to consider how the basis upon which you hire someone impacts their rights and your responsibilities. Employees are covered by the full range of statutory employment rights, whilst workers have a more limited range of rights, and the self-employed very few.

A specialist in employment law can help you to plan ahead, and to make informed decisions as to the type of employment status that will work best for your business, with properly drafted contracts that accurately reflect any working arrangement in practice. In this way you can feel confident that the employment status you promise someone is, in fact, what you’re providing.

 

Need assistance?

 

DavidsonMorris’ business employment lawyers support employers with all aspects of employment contracts and agreements. When determining employment status,  tribunals will consider both the relevant contract terms as well as the facts and circumstances of the relationship and working arrangement. Our experts provide guidance to employers to avoid uncertainty around employment status, contract terms and employee entitlements. For specialist advice, contact us.

 

Employment Status FAQs

 

What is employment status?

Employment status defines the legal relationship between an individual and the organisation they work for, determining their rights and responsibilities under the law.

 

What are the main categories of employment status?

There are three main categories in the UK: employees, workers, and self-employed individuals. Each category has specific rights and obligations.

 

How can employers determine an individual’s employment status?

Employment status is determined by the nature of the working relationship, including factors such as control, mutual obligation, and the degree of independence in carrying out tasks. Contracts should accurately reflect these factors.

 

Why is employment status important for employers?

Correctly identifying employment status ensures compliance with legal obligations, prevents disputes, and protects against liabilities for unpaid entitlements or tax.

 

What rights do employees have compared to workers?

Employees have full statutory rights, including redundancy pay, sick pay, and unfair dismissal protections. Workers have fewer rights but are entitled to minimum wage, holiday pay, and protection from discrimination.

 

What risks do employers face from misclassifying employment status?

Misclassification can result in tribunal claims, financial penalties, and damage to reputation. It may also lead to backdated tax and National Insurance contributions.

 

Can employment status change over time?

Yes, status can change depending on the nature of the working relationship. Employers should regularly review contracts and practices to ensure they align with actual working arrangements.

 

What should employers do if there is uncertainty about status?

Seek legal advice to clarify the appropriate status. Clearly drafted contracts and consistent working practices are essential to avoid disputes.

 

Glossary

 

Term Definition
Employment Status The classification of an individual’s working relationship, determining their legal rights and obligations.
Employee A person with a contract of employment, entitled to full statutory rights such as redundancy pay, sick pay, and unfair dismissal protection.
Worker An individual providing services under a contract, with rights including minimum wage, holiday pay, and protection from discrimination.
Self-Employed A person running their own business and responsible for their own tax and National Insurance contributions, with minimal statutory protections.
Contract of Employment A formal agreement outlining the terms and conditions of an employee’s working relationship with their employer.
Control The degree to which an employer dictates how, when, and where work is performed, used to help determine employment status.
Mutual Obligation A key factor in employment status, referring to the employer’s obligation to provide work and the individual’s obligation to accept it.
Tribunal Claim A legal action brought by an individual against an employer for issues such as unfair dismissal, discrimination, or unpaid entitlements.
National Insurance Contributions (NICs) Payments made by employers and employees to fund state benefits like pensions and healthcare.
HMRC Her Majesty’s Revenue and Customs, the UK’s tax authority responsible for ensuring correct classification of employment status for tax purposes.
Misclassification The incorrect categorisation of an individual’s employment status, potentially leading to legal and financial consequences.

 
 
 

Author

Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.

She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.

Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals

About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility.

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners, we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

Read more about DavidsonMorris here

 

Legal Disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct at the time of writing, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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