Ways to assess employment status

In the UK there are currently three main types of employment status. In this article we will consider the differences between each category and look ahead to the government’s vision for a two-tier approach to employment status.

The three statuses in the UK today are employee, worker and self-employed.

Each status has different rights and responsibilities. Employees receive the most protection and rights, self-employed receive the least and workers are in the middle.

Correctly identifying an employment status is essential and getting it wrong can be expensive.

Classifying an individual as self-employed when they are actually an employee can be very costly and trigger back payments in tax and employment liabilities (e.g. the cost of payments for unpaid holiday can be damaging to an employer).

Understanding the different statuses

Here are the key differences between the three statuses:

• Employees are individuals who work under a contract of service. They are entitled to full employment law protections and they get all the rights that workers are entitled to receive.

• Workers are individuals who, whilst not employees with employment rights, are not fully independent and therefore are entitled to only some protections. They are entitled to basic rights such as holiday pay, rest breaks and the national minimum wage. But they miss out on the higher level of protection that employees receive. The difference between a worker and employee can be hard to determine and is decided by individual situations.

• Self-employed are individuals who work under a “contract for services.” They are their own bosses and are not entitled to employment law protections.

Factors in determining status

The nature of the relationship between the individual and the organisation determines which status will apply. This, along with the personal performance of the service, the obligations involved, and the amount of control exerted by the organisation are really the true tests.

Here are the key considerations tribunals will consider when determining the status of an individual:

• Personal service – Is the individual required to perform the service themself or can they subcontract their work or appoint a substitute?

“Personal service” is a condition of employee status. So, if an organisation does not require an individual to provide a personal service this is an indicator of self-employment.

• Mutuality of obligation – If an organisation is obliged to provide an individual with work and pay, and that individual is obliged to do that work personally it indicates an employment relationship.

Whereas if the individual is a worker these obligations do not apply as the organisation is not obliged to provide work and the individual is not obliged to accept it.

• High levels of control – If an organisation exercises high levels of control over an individual’s workload and where, when and how that individual carries out their work it indicates an employee status.

Whereas, if the individual has a level of freedom over where, when and how much they work it suggests a worker status. Workers still fall under the control of the organisation but they have more choice on where, when and how they work.

• Other factors to consider – Individuals who provide their own equipment, set their own hourly charge rates, have financial risk and work for other companies are likely to be self-employed.

Whereas individuals given set or minimum hours, where pay rates are set by the organisation, who have low / minimal financial risk, who cannot work for others (without permission from the organisation) and those more deeply integrated in the organisation tend to be workers or employees.

Potential “two-tiered” status

The government has set out proposals to explore a combined employee / worker status and a separate self-employed category.

This plan is not part of the Employment Rights bill but remains a longer term objective following further consultation with employers.

Should the proposed change become legislation, “workers” as we know them now, will be entitled to all basic employment rights from day one.

Source: Gavin Parrot