Last year there was a considerable amount of media interest on employment tribunal rulings particularly high profile cases such as Pimlico Plumbers and Uber which has left some business owners questioning the difference between worker and self employed status.

Like most companies you may at some point outsource some work to freelancers or hire agency workers to cover holidays, sickness or increased work loads. It’s therefore important to clearly define and understand the type of workers you use as this will determine their employment rights. As an employer, it’s your duty to make sure workers’ rights aren’t violated as otherwise, you could face employment claims.

To assist you here is the Governments definition of Workers and the Self Employed.

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, for example 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

Agency workers have specific rights from the first day at work

Workers usually aren’t entitled to:

  • minimum notice periods if their employment will be ending, for example 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

 

SELF EMPLOYED & 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. Someone can be both employed and self-employed at the same time, for example if they work for an employer during the day and run their own business in the evenings.

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

Individuals and their employers may have to pay unpaid tax and penalties, or lose entitlement to benefits, if their employment status is wrong.

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

You can check someone’s employment status:

  • online
  • by phone

There are special rules for businesses supplying workers, for example 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.