Are your staff employees or workers?
Employment law distinguishes between workers and employees. Learn the difference in our handy article.
To say that the modern workplace has seen some changes is an understatement. The gig economy and a sharp rise in self-employment have meant that freelance workers and external contractors are now an integral part of the workforce.
If you work in HR, the differences between these types of staff are important. It has significant implications for both you and your staff – and it's coming under increasing governmental regulation.
In this article, we look at different kinds of employment status so that you can be sure that everything you're doing is above board.
Why does it matter?
Employment status is important for two reasons.
It affects how staff are paid and taxed. It also affects what you can expect of them in terms of contract law.
Whatever sector you're in, you need to be clear on your staff's different employment statuses or risk disputes, tribunals or even court cases.
What types of employment status are there?
For tax purposes, there are two types of workers: employed and self-employed. However, employment law isn't perfectly aligned with tax law and has three categories: employee, worker and self-employed.
This means that a person could have one status in employment law and another in tax law. This can lead to HMRC challenges if it thinks that someone has been wrongly classified. This is one reason why you need to be sure you're categorising your staff correctly.
What's the difference between an employee and a worker?
In common parlance, the terms "employee" and "worker" are interchangeable. But in employment law, they have distinct meanings.
Both workers and employees work for a company. This contrasts with self-employment, where the company is the self-employed worker's client.
A worker has a contract and their employer has to give them work for its duration. They're entitled to employment rights like the minimum wage and statutory levels of rest breaks, holidays and working weeks. They're protected against discrimination and unfair dismissal or treatment because of whistleblowing.
However, they typically have fewer employment rights than an employee. They don't, for instance, get protection against unfair dismissal or minimum notice periods and they don't have the right to request flexible working.
The full list of employment rights for workers and employees is available on the government's website.
Employees are different. They have a contract which outlines their activities. Their work can be either part-time or full-time. All employees are workers – but an employee has extra employment rights and responsibilities. These are:
- Minimum notice periods
- Protection against unfair dismissal
- Statutory Adoption Pay and Leave (workers only get pay, not leave)
- Statutory Maternity Pay and Leave (workers only get pay, not leave)
- Statutory Paternity Pay and Leave (workers only get pay, not leave)
- Statutory Shared Parental Pay and Leave (workers only get pay, not leave)
- Statutory Sick Pay
- Statutory redundancy pay
- The right to request flexible working
- Time off for emergencies
Sometimes, an employee will need to work for a minimum length of time before qualifying for these extra rights. This length of time should be specified in the employee's contract.
What happens if you get your staff's employment status wrong?
It's important to know whether a recruit is an employee or worker before they start work for you.
If you misclassify a worker as an employee or vice versa, you and your member of staff could have to pay unpaid taxes and penalties. Your member of staff could also lose the benefits they're entitled to.
If unresolved, a dispute about a member of staff's employment status can end up in a tribunal or even court. For this reason alone, it's vital that you categorise your personnel correctly.
What's the difference between an employed and self-employed member of staff?
The self-employed aren't paid under PAYE and they don't have the same rights and responsibilities as employees. However, some health and safety and discrimination provisions apply to both.
A self-employed person is responsible for the success or failure of their business. They decide what work to do and work for more than one client.
The difference between the two is important, especially when it comes to applying the IR35 tax rules. You can find out if someone has self-employed status online. If you can't find the information you need, you can contact HMRC.
You should also be aware that there are special rules for employment agencies supplying you with workers.
What's a contractor?
A contractor can be self-employed, a worker or an employee, so make sure you check which they are before getting them on board. In the construction industry, there's a special scheme for self-employed contractors called the Construction Industry Scheme.
How many employees and self-employed people are there in the UK?
Between October and December 2023, there were 28.68 million employees and 4.37 million self-employed in the UK.
How to avoid a claim
One of your responsibilities as an employer is to get the employment status of your staff right. If you get it wrong, you may end up in an employment tribunal or even in court.
The general trend is towards greater protection for workers in the gig economy, so you need to be sure that you're across these issues.
Conclusion
The difference between workers, employees and the self-employed may seem like a technicality – the preserve of employment lawyers and sociologists. But it's an important practical consideration if you work in HR.
Miscategorising a member of staff can result in unpaid tax, penalties, tribunals or even time in court. It's just not worth it. Make sure you're up to speed and you can maximise the chances of an easy life for you and your staff.
Are you looking for employment law advice relating to your staff's employment status? At Milners Solicitors, we have a team of experienced employment lawyers who'll be happy to help. Get in touch to book a free initial consultation.
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