UK law recognises three types of employment status: employee, worker and self-employed. Each carries different rights and tax obligations. Someone’s employment status depends on the facts of the working relationship, not on what a contract says.
A person’s worker status affects their rights and tax obligations.
Getting this wrong can mean you face HMRC penalties and employment tribunal claims.
Understanding employment status is important if you:
The same working arrangement can have a different status for different purposes. For example, if you contract a cleaner who is a sole trader, that person may be a worker for employment rights purposes, but self-employed for tax purposes.
Your legal responsibilities towards the people who work in your business depend on their employment status.
For employment rights purposes, a person can be:
Working out employment status is usually fairly simple, but it can be trickier if you use:
Look at factors like how much control you have over the person’s work, whether there’s an expectation that you will provide work and the person will do it, and whether the person can send another person to work in their place.
For tax purposes, a person can be either:
A person is likely to be an employee if they:
It’s best to check someone’s employment status for tax if they are:
You may have to pay back taxes and penalties if you treat someone as self-employed when HM Revenue and Customs (HMRC) believes that they are employed, or if you are treated as self-employed when you should have been treated as a worker or employee.
Off-payroll, or IR35, rules prevent tax avoidance. The rules make sure that contractors and freelancers pay the same tax and National Insurance as employees if it seems like the working arrangement is closer to employment than self-employment.
You need to understand IR35 and off-payroll working rules if:
If HMRC decides you are working ‘inside IR35’, this means you are classed as:
