March 17, 2022

Employee, worker, or self-employed: what’s the difference and who cares?

If it looks like a duck and quacks like a duck, it’s probably a…contract of employment.

In 2018, the Government published its ‘Good Work Plan’, designed to bring the world of work into the 21st Century. It proudly announced the introduction of legislation to ‘improve the clarity of employment status tests’ and prevent employers ‘trying to misclassify or mislead their staff’. But it still hasn’t been introduced!

Meanwhile, a procession of cases trundle through the courts and tribunals. Getting employment status wrong is an expensive proposition. HMRC may look to you to resolve shortfalls in tax or national insurance contributions. Someone you consider self-employed may pursue you successfully for holidays and holiday pay. You may face a vicarious liability claim for the act or omission of a supposedly independent sub-contractor or consultant.

There are hundreds of cases about employment status. And, in this ‘gig economy’ era, work relationships increasingly focus through an ‘app’ on someone’s phone. Unsurprisingly, the number of legal challenges increases.

So just what are the key differences?

  • An employee is someone at the service of their employer. They undertake work personally. In turn, their employer pays them. What they do and when is controlled by their employer under a ‘contract of employment’. This doesn’t necessarily mean a formal, legally drawn document. Terms can be expressed or implied. Indeed, a contract can even be an oral agreement. An employee can potentially claim redundancy or unfair dismissal and is eligible for a host of other employment rights and benefits.
  • A worker is often difficult to distinguish from an employee. Even more so since 2020 when the Government legislated you must issue them with a ‘written statement of employment particulars’. This even applies to a casual assignment of one or two days.
  • Workers perform their work or services personally. This assumes the relationship is not that of a ‘client or customer of any profession or business undertaking carried on by the individual’. I wish I had £10 for every case that challenged whether such a relationship existed. Recent ‘gig economy’ cases like Uber, Addison Lee, Deliveroo, City Sprint, Pimlico Plumbers and Hermes all turned on whether the individuals were self-employed freelancers, or, in reality, workers or employees.
  • Workers enjoy some, but not all, rights provided to employees. They enjoy the National Minimum Wage, holiday pay and itemised pay statements for instance. A casual worker who undertakes occasional, ad hoc assignments a couple of times a year is discernibly a casual worker. But a casual worker who is required to turn up and undertake regular work may well morph into an employee.
  •  Self-employment is not an employment relationship at all. Where constructed properly, the contract is business-to-business. Providing the individual is clearly running their own business, they are not entitled to statutory employment rights applicable to employees or workers. The difference between employees and the self-employed turns on one word. An employment contract is a ‘contract of service’ whereas a self-employed contract is a ‘contract for services’.

How is employment and self-employment status regulated?

There are important tests regulating employment and self-employment. Some that regularly crop up are: –

  • Control and direction – Do you require the individual to be present at times you specify? Do you control what they do and how they do it? Do you discipline them? Pay them a wage rather than a fee? These indicators point towards employment.
  • Integration – Are they embedded in your workforce? Do they drive your liveried vans? Or wear your uniforms? Issues like this can even feature in claims against you for vicarious liability.
  • Substitution – Must they undertake the work personally or can they send someone else to do it? Recent key cases often featured whether work was performed personally and ‘substitution’ was genuine.
  • Risk – Does the contractor stand to make (or indeed lose) money according to business decisions they make? The more clients your sub-contractor has, the easier to demonstrate ‘risk’.

Most of the time you will employ people as employees. Where you occasionally offer ad hoc work to a ‘casual’ it’s important to ensure the arrangement does not confer ‘mutuality of obligation’. You are not obliged to offer work and the individual must be free to decline any you do offer.

With sub-contractors and consultants, it’s imperative to utilise a strong contract for services. Never leave sub-contracting work unregulated or subject to verbal understandings. If something goes wrong, you can face criminal charges, financial penalties and civil claims. You may also suffer reputational damage. Don’t forget, if the sub-contractor handles personal data for you, a data processing agreement must also be in place.

Moorepay can provide robust casual worker agreements for HR clients. We also offer consultancy services to create contracts for services and third-party data processing agreements for sub-contractors and consultants. Please contact 0345 184 4615 for further information.

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About the author

Mike Fitzsimmons

About the author

Mike Fitzsimmons

Mike is a Senior HR Consultant within the Moorepay Policy Team. He is responsible for the developing of employment documentation and is an Employment law advisor. With over 30 years of senior management and HR experience, Mike has managed teams of between 30 and 100 employees and is familiar with all the issues that employing people brings. He has also served as a non-executive director on the Boards of several social enterprises and undertook a five year tour of duty as Executive Chair of a £30+ million annual turnover Government agency.

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