The government has updated its guidance on employment statuses. The aim? To clarify the differences between the rights of employees, workers, and the self-employed.
Why? If you misclassify your workforce, you could be underpaying them and denying them their legal rights. Not to mention, you could also be underpaying tax - which lands you in trouble with HMRC…
Don’t set yourself up for financial losses and disputes. To protect yourself and give your workers what they’re entitled to, this is what you need to know.
How do I know if someone is a worker, an employee, or self-employed?
You can determine whether someone is an employee, a worker, or self-employed by their work situation.
You’re likely to have employees if:
- you provide consistent work to them, and they’re obligated to accept it
- they need to carry out the work themselves
- you pay them for annual leave, sick leave, and family leave
- you expect them to work their contracted hours and pay them for those hours
- you provide them with equipment
- you pay them a PAYE (pay as you earn) wage
- you pay tax and national insurance for them
You’re likely to have workers if:
- you provide work for them to do (this doesn’t have to be consistent)
- they choose how much work they do and when they work
- they don’t work regular hours
- they’re on your payroll
You’re likely to have self-employed workers if:
- they own a company or work on a freelance basis
- they control their workload and how much they work
- they can send other people to do their work
- they work for different clients
- they decide how much to charge for their work
- you pay them invoices instead of a wage
- they cover expenses for their own equipment and running costs
Is there another way I can test this?
There are three main tests to check whether someone is an employee, worker, or self-employed.
How much control do you have?
Control is about how much say you have over your working relationship. If you have employees, you decide when they do the work, where it’s done, and how it’s done. They don’t have a say on it.
If someone has some say on the work they do and when they do it, they’re probably a worker. And if they have full say on the work they do, they’re probably self-employed.
Who carries out the work?
If your staff have to do the work themselves and they can’t send a substitute, they’re employees.
Workers have to do the work themselves, but they may have some flexibility, like being able to turn down shifts.
If someone’s self-employed, they can send someone else to do their work without any restrictions.
Is there a mutual obligation to provide and accept work?
If you have to provide work and your staff have to accept it, they’re employees. If you don’t have to provide work and your staff don’t have to accept it, they’re either workers or self-employed.
Employment status needs to be in the contract
Because there are crossovers between categories, it’s important to clarify someone’s employment status in their contract.
You should know an individual’s employment status when you hire them and make sure they have the right contract to reflect your working relationship.
Employees can be on any of the following contracts:
- a permanent contract – the most common type of employment contract; can be for full-time or part-time positions
- a fixed-term contract – gives mostly the same rights as a permanent position but comes with a set end date, like 12 months
- a zero-hour contract – a flexible option; employers don’t have to provide any minimum working hours, but the employee has to accept work if given
You might hire workers or self-employed individuals when you need staff to do a job for you, but you don’t need them permanently or have consistent work for them. So, you might offer them:
- agency staff contracts – if you hire temporary staff from an agency, for example, to provide extra support during busy periods like Christmas
- freelancer contracts - if you need freelancers, consultants, or contractors from outside your company to do work for you
- zero-hour contracts – if you require staff to work as and when you need them, but you don’t have regular work to give
Employees and workers can both be on zero-hour contracts. The difference is employees have to accept work whereas workers can decline it. So, it’s important to be clear about whether your staff are zero-hour employees or workers.
But be aware, you can’t determine employment status just by writing it in the contract.
You need to consider what your working relationship is actually like. You might describe someone as self-employed in their contract. But if the contract also obligates them to accept work, they’re an employee under employment law.
If the contract is wrong, you could be at risk of illegal practice. So, check your documentation is accurate and up-to-date.
Need to review your staff contracts?
Leave the reviewing and amending to the HR experts. They’ll keep you safe from risk, while you focus on your business.
Employment status determines someone’s rights
Depending on what employment status you have, you’ll have certain rights.
Employees have all employment rights. They get all the statutory employment rights, like minimum wage and holiday pay, with extras added on top.
Workers have some employment rights. So they have the right to minimum wage, a 48-hour weekly working limit, holiday pay, and pensions. However, they’re not entitled to:
- sick leave
- statutory notice
- parental leave
- right to request flexible working
- protection against unfair dismissal
- redundancy pay
- time off for dependents
Workers may be able to get sick pay, shared parental pay, maternity, paternity, and adoption pay but this isn’t an automatic right.
Self-employed individuals work for themselves and generally manage their own businesses. They have the most flexibility and control over how much work they do and when they do it.
They don’t have any employment rights like workers or employees, but will be entitled to:
- health & safety protection
- protection against discrimination
What happens if I misclassify my workforce?
If you give staff the wrong employment status, they might miss out on statutory entitlements. For example, if you label an employee as a worker, they could miss out on sick pay and holiday pay – which they’re legally entitled to.
You might apply the wrong employment status accidentally, but the intention doesn’t matter. You may still face costly fines and disputes.
How can I make sure I’m not liable to pay tax and legal penalties?
To avoid having to pay extra tax and legal penalties, you’ll need to make sure:
- you have no doubts about the employment status of your workforce
- your contracts are up-to-date and clearly outline your working relationships
Don’t pay the price for a misunderstanding. If you have any concerns, call 0800 028 2420 for expert advice and documentation support.