Am I an employee, self-employed, or a worker?

Deciding someone’s employment status can be complicated, and Employment Tribunals and HMRC may consider different factors when deciding your status, as there’s no single legal definition.

IR35 legislation has muddied the legal waters further, and not knowing how to correctly define yourself can lead to costly and time-consuming Employment Tribunals and, in some cases, financial penalties. For more information on determining your legal status if you are a contractor, see our IR35 Hub, where we explain IR35 in detail. We also have a free IR35 calculator for contractors to help you check your IR35 status.

We have a knowledge article about supervision, direction, and control, and if you’re concerned about IR35, our IR35 calculator can help you see whether you’re at risk without giving any of your details to HMRC!

This article contains:

• The importance of establishing your status
• Employees (including Fixed Term Contracts)
• Workers
• Self-employed (freelancer or contractor)
• Determining your employment status
• Considerations for the TV/Film Industry

The importance of establishing your status

There are three different types of working individuals:

• an employee
• a worker (someone who works on a casual basis or is an agency temp)
• or someone who is self-employed (i.e. a freelancer or contractor).

It’s important to establish your status correctly since employees generally have more employment rights than workers or those who are self-employed (see our article about your Employment Rights). There’s also a difference in National Insurance contributions, tax, and benefits between employees/workers and those who are self-employed.

It’s therefore equally important for employers to know the correct status of those you employ. Whether you’re taking on an employee, or simply hiring a freelancer or contractor to help your business for a short period. If you’re taking on an apprentice, check out our guide to apprenticeships for all the information you need.

ACAS (the Advisory, Conciliation and Arbitration Service) have published guidance in for employers in relation to employment status. The guidance is to assist employers following the numerous cases regarding employment status in the ‘gig economy’ and also covers agency workers, apprentices, fixed term workers, piece work, volunteers, work experience, internships, and zero hours contracts.

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An employee

Presently, there’s no single legal test to determine if you’re an employee or a worker, but you’re likely to be an employee (whether on a permanent, open-ended, or on a fixed-term contract) if:

• Your employer provides the work, any tools and equipment for it, and they decide how and when you do the work (known as the “What, Where, When and How Tests”)
• You’ll usually have a written contract (although a verbal contract will count)
• You’re expected to do the work yourself that you’re employed to do, and may be moved to different tasks
• You’re usually paid a regular amount according to the hours you work (through the Pay As You Earn (PAYE) system – so tax and National Insurance is deducted), and you usually have to work a set amount of hours. You may also get extra pay for overtime and bonuses, work variable hours.

The legal definitions of these tests (from case law, not from statute) are personal service, mutuality of obligation, and control.

If you’re an employee, your contract is called a ‘contract of service’.

Fixed-term contracts

There’s a provision in law where someone employed on a fixed-term contract can receive a permanent (open-ended) contract if:

• You have been continuously employed (i.e. no significant breaks) by the same employer on a fixed-term contract for four years or more that started after 10th July 2002 (unless your employer has changed this time limit by a ‘workforce’ or ‘collective’ agreement)
• If this is the case, you can ask your employer for a statement confirming that you’re now permanent and no longer employed on a fixed-term contract
• Your employer can only keep you on a fixed-term contract after four years if they could objectively justify this at the point your fixed-term contract was last renewed
• If your employer fails to give you this statement (when you’ve requested it) or gives you a statement of reasons why you must remain on a fixed-term contract that you don’t agree with, you can make a claim to an Employment Tribunal.

You can read more  in our article  “What are fixed-term contracts  and how can they come to an end?”.

 

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A worker

This is a broader category than an ‘employee’, introduced by European Union legislation (although there is no EU definition). A worker is anyone who works for an employer under a contract of employment (this may or may not be a written contract, and the contract may not come directly from the employer) and performs the work personally (which can include some freelancers).

Workers are usually either:

• Agency workers (‘temps’) – the agency who finds you work pays your wages, or if you are a contractor, you may get work through an agency but an Umbrella company pays your wages. The company who hires you pays a fee to the Agency for your work. The Gov.uk website has got more information on the employment status of ‘worker’ and also that of an ‘Agency worker’. On 1st October 2011, the government introduced the Agency Workers Regulations which gives ‘agency workers’ the right to equal treatment (with permanent staff working at the same organisation). For full details of these regulations see our guide to the Agency Workers Regulations.
• Short-term casual workers – hired directly by the employer, often with a written contract, and usually paid via PAYE (with Income Tax and National Insurance Contributions deducted). Casual Workers aren’t usually part of the permanent workforce but supply their services on an irregular or flexible basis or have a ‘minimum guaranteed hours‘ or ‘zero hours’ contract. DirectGov has got more information on how to work out if you are a casual worker
• Freelancers and contractors – there are occasions when those who are self-employed for tax purposes may be classified as ‘workers’ for employment rights purposes, including when a self-employed person is personally providing a service (see Pimlico Plumbers case below). You generally can’t be a ‘worker’ if you’re self-employed and the contract between yourself and your client includes a genuine right entitling you to ‘substitute’ someone else to do the work at all times
• Limited Liability Partnerships – In May 2014 the Supreme Court ruled that members of Limited Liability Partnerships are workers for the purposes of the Employment Rights Act 1996 – which gives entitlement to statutory rights and protections including rest breaks, annual leave, part-time workers rights, and for whistleblowing protection.

In addition, there are also home-workers (or piece-workers) who have more limited rights than normal ‘workers’. See our guide to employment rights for the full details.

Foster carers and parents have generally not been seen as workers – but, in August 2020, a Scottish Employment Appeal Tribunal found that a couple who were involved in a specialist foster care programme were workers.

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Self-employed (freelancer or contractor)

You’re likely to be self-employed if:

• You determine how and when you do the work within reason (known as master/servant relationship)
• You can hire helpers or replacements for you if you’re unable to do the work (also known as substitution)
• You pay your own Income Tax and National Insurance Contributions on a self-employed basis (meaning you complete a Self Assessment tax return)
• You’re contracted to provide services to the client/employer over a certain period of time, or on an ad-hoc basis, for an agreed fee and aren’t integrated into the company
• You run your own business and take financial responsibility if it’s successful or not, and provide the main items of equipment
• You may work on your own premises
• You may have several customers (clients) at one time (known as economic reality).

If you’re self-employed, your contract is called a ‘contract for service’. You can read what rights you have if your client cancels your contract in our article, and learn more about IR35 in our “Is my contract inside or outside IR35?” article. We’ve got more about becoming a freelancer in our knowledge article what is a freelancer.

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Determining your employment status

There’s no one single thing that completely determines your employment status. An Employment Tribunal will make a decision based on all the circumstances of the case to decide your status if there is a dispute between you and your employer. There are four main categories they look at:

• Control – Do you have the final say in how your business is run? Can you choose whether to do the work yourself or can you send someone else to do it (Substitution)? Can you choose when and how you work (or does your employer tell you what to do and when to do it?)
• Integration – Are you responsible for hiring other people and setting their terms of employment if you need help? Are you excluded from your employer’s internal organisational matters, corporate training, staff meetings? Are you exempt from having action taken against you using the company’s disciplinary procedures and have no access to their grievance procedures? Are you excluded from company benefits and perks? If, for example, you lead a team of employees, you may be integrated
• Mutuality of obligation – Does the employer offer work to you only if and when it’s available? Can you decide when you will work and can you turn the work down that is offered (or are both parties of a view that a contract of employment exists)?
• Economic Reality – Are you responsible for meeting the losses of your employment as well as taking the profits? Are you responsible for correcting unsatisfactory work at your own expense? Do you have to submit an invoice to the company for them to pay you? Do you get a fixed payment for the job or charge an hourly rate(including labour and tools/materials)? Are you registered for VAT? Do you provide the main items of equipment needed to do the job? Do you work for a range of different employers/clients?

However, none of these on their own will decide your status. One judge has described it as ‘painting a picture’ of all the details and looking at the ‘picture’ from a distance.

So, with these four main categories in mind, if you answer:

• Yes to all or most of the questions above, then it’s more likely that you’re self-employed
• No to all or most of these questions, then you are likely an employee
• Yes to some (specifically that you can decide when you will work and can accept work or turn it down; that the employer will only offer work when it’s available) but you’re not in business on your own account, it’s likely you would be considered a worker.

These questions are a summary for guidance only and the courts take a view of all of the tests – none will decide a case on it’s own. You should get advice from an expert if you’re unsure.

HMRC published “Supervision, Direction or Control” guidance in March 2014. There is also the thrilling read of the employment status manual from HMRC with all the detail you could ever need on the subject.

There have been several important Employment Tribunal case about employment status and these include:

• Autoclenz Ltd v Belcher, 2011 – which made it clear that the courts will focus on the actual reality of the working relationship between the individual and the employer, and not focus on what the contractual documentation says
• And Pimlico Plumbers v Smith, 2014

Pimlico Plumbers v Smith, 2014

In the 2014 case of Pimlico Plumbers v Smith, Mr Smith was employed as an ‘independent contractor’:

• He was described as “in business on his account”
• He was as required to provide his own tools, submit invoices to be paid, and to have professional indemnity insurance
• He could choose his particular working hours and reject jobs
• He was required to work a minimum number of hours per week (five days per week/40 hours)
• Pimlico Plumbers weren’t under an obligation to provide work if there was no work available.

He did, however, have to wear a Pimlico uniform, have a Pimlico ID badge and mobile phone, drive a van with a Pimlico logo (which he had to pay rent for) and could only be contacted by customers through the company; customers would receive contracts and estimates in the name of Pimlico and would only pay Pimlico. He had his movements monitored by Pimlico through GPS installed in the van, and the agreements he signed said if he did private work for a customer, this would result in dismissal; this agreement also contained post-termination restrictive covenants.

Following a heart attack, Mr Smith asked to reduce his working hours to three days per week, and when this was refused, Mr Smith bought claims to an Employment Tribunal for unfair dismissal and/or wrongful dismissal and direct disability discrimination, among others.

The original Employment Tribunal and the Employment Appeal Tribunal found that he was a ‘worker’ not an employee. The case was passed up to the Court of Appeal and finally to the Supreme Court, in 2018, who finally concluded that the “dominant feature” of his contract was that he should perform the work himself (the contract referred to his skills with a warranty that he was competent to carry out the work, and required a high standard of conduct and appearance; there was no ‘substitution’ clause). Therefore, Mr. Smith was ruled a ‘limb worker’ for employment rights purposes because he provided a personal service and there was no right of substitution. However Mr Smith’s later claim for holiday pay failed, and you can read the details here.

Other things to consider

You can, of course, be employed and self-employed at the same time (you may be an employee during the day and run your own business in the evening, or take a freelance contract with one employer and your next contract is on a PAYE basis). You may also not be self-employed for every job – each job needs to be considered separately. HMRC can help you decide what is right in these circumstances.

If your employer believes that you should be self-employed, but you don’t think you can be, you must tell your employer this and they should not insist that you’re self-employed. You can’t be classed as self-employed if your employment looks like it has employee status, regardless of what your contract says.

If HMRC decides you’re a ‘deemed employee’ (i.e. you’re an employee, not a freelancer), they would seek to recover the higher levels of tax due from your client, generally not from you.

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TV and film industry

In the film and TV industry, there are many people working who find it difficult to determine their status. HMRC have issued detailed criteria to help determine whether you are employed or self-employed.

There are also occasions in the film and TV industry when you’ll do a job that isn’t on the list produced by HMRC, but if you contact them, they may class you as self-employed and give you a letter of authority. The above link gives details of how to do this and the letter of authority must be given to your employer.

If you’re thinking of going freelance, you can check out our article, ‘Becoming self-employed’, which outlines the advantages and benefits as the pitfalls and perils, of going it alone.

If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk  – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.