Employment Status and Why It Matters - Part II

08/03/24

News

Why does getting employment status correct matter?

Getting employment status correct matters because the three different main types of employment status in the UK – “employee,” “worker,” and “self-employed” – attract different rights and liabilities for those working and place different obligations upon those offering work.

Rights that only employees benefit from

Only employees benefit from the following rights, workers, and self-employed people do not. Please note that this is not an exhaustive list.

The right to claim unfair dismissal;
to receive statutory redundancy, guarantee and insolvency payments;
the right to payment relating to suspension on medical grounds;
the right to take maternity leave, paternity leave, adoption leave, parental leave and bereavement leave;
and the right to receive statutory notice.

Rights that only workers and employees benefit from

Only employees and workers benefit from the following rights, self-employed people do not. Please note that this is not an exhaustive list.

The right to protection from unlawful discrimination whilst working (under the Equality Act);
the right to holiday pay and to protection under the Working Time Regulations;
and the right to the National Minimum Wage.

What are the obligations of an employer?

These are some of the obligations that employers have towards employees and some workers, but do not have to all workers or to self-employed persons. Again, this is a non-exhaustive list.

The obligation to comply with all of the statutory rights referred to above;
to ensure a safe place and system of work;
to provide a minimum pension scheme (may not apply to all workers);
to deduct income tax and employee national insurance at source and to pay employer national insurance contributions;
an obligation to provide training;
and an obligation to provide a workplace and equipment.

What are the consequences of getting employment status wrong?

Just because a person has signed a contract identifying him or her as being a self-employed person or a worker, this is not determinative of his or her employment status. Thus, if a person working under a contract of self-employment becomes aware that they should have worker or employee status, there is nothing preventing them from asking for and/or enforcing their rights based upon the reality of the working relationship, for example, the right to holiday pay or maternity leave. If the employer wrongly declines these requests on the mistaken belief that the contract is correct, the worker or employee can bring claims in the employment tribunal to enforce those rights and may have other claims, for example, discrimination. Further, if the person is an employee and decides to resign in response to the employer’s failure to offer the correct employment rights, the employee can (subject to establishing two years’ continuous employment), bring a claim of constructive (unfair) dismissal.

Incorrectly determining employment status can also have taxation implications. If someone has been wrongly treated as self-employed and is found to have been an employee for tax purposes, the employer may well be required to pay backdated tax and employee and employer national insurance contributions to HMRC.

This article was written by senior solicitor at Invicta Law, Mark Radford. Read Part I to learn more about the factors a court will consider when determining employment status.

Disclaimer: This article does not constitute legal advice and is provided for general information purposes only. Published 8 March 2024 and applicable to England only.