2. Status – employee, worker or contractor?

When a business engages an individual to provide services, it is important to establish the basis for that engagement. They may be either:

  • An employee, in which case they will have full employment rights (and obligations) such as the right not to be unfairly dismissed, the right to receive minimum notice and a redundancy payment (all subject to length of service) and the right to a statement of terms and conditions; or
  • A worker, in which case they will have limited protection, for example as regards wages and paid holiday; or
  • Self-employed, i.e. an independent contractor, in business on their own account.

The importance of establishing status is that the different categories are treated differently for employment law, immigration and taxation purposes. Some of the more striking examples of these differences are:

  • Employers are responsible for operating PAYE tax for employees and workers; the self-employed are responsible for making their own tax arrangements;
  • Employers are vicariously liable for the acts of their employees and will need to insure against that liability; independent contractors should be required to insure themselves; and
  • Employers must carry out checks on their employees’ and workers’ right to work in the UK under immigration law; they are not required to conduct such checks for contractors.

A tribunal or court will look at a number of elements to decide an individual’s status, including:

  • Whether there is “mutuality of obligation” ­ in other words, does the individual have to carry out work that is given to them by the business, and does the business have to give the individual work? If there is no mutuality, this will generally be fatal to any suggestion of an employment relationship.
  • Can the individual work for more than one business? Although having more than one job does not necessarily preclude someone from being an employee or a worker, it may be suggestive of self-employment if they work for a number of different organisations in the same line of business.
  • Does the business control how, when and where the individual performs the work? Does it provide equipment, training and premises to do the job? Are they integrated into the employer’s workforce and subject to their disciplinary and grievance procedures? The more control and integration, the more likely the relationship is to be that of employer/employee.
  • Can the individual send a substitute to carry out the work or use a sub-contractor? If so, this is much more likely to indicate that the individual is an independent contractor as the contract is not one of personal service.
  • Does the individual risk their own money if the work is not performed adequately? If so, this is suggestive of being in business on their own account.