Employment status is an important part of a well-functioning and fair labour market. If you are currently working or have worked in the past, then you will have experienced employment status. Individuals in the workplace fall into one of three employment status categories defined by law, each with different levels of rights and protections.
What is employment status?
Employment status is the minimum rights and responsibilities an individual, employer or engager has in the workplace in all types of working relationships.
It includes pay, leave and working conditions. There are different protections for individuals in each employment status which are defined by law, to avoid unfair practices in the workplace.
Employment status is not just what a working contract (written or oral) states. It takes into consideration the entire working relationship including the purpose of employment legislation – the contract makes up one part of this.
What are the different types of employment status?
There are lots of different working relationships, however, the law has summarised them into three different types of employment status.
What are the different employment rights for each status?
Employment statuses have different employment rights and protections. As they are set out by law, they cannot be avoided or ignored – they are vital for protecting individuals in the workplace.
How is employment status determined by law?
The Employment Rights Act 1996 determines most of the employment rights and protections. Based on legislation and case law, the three employment statuses are summarised as follows:
- Employee: where it can be determined a contract of employment exists. Employees are entitled to all employment rights subject to qualifying periods.
- Limb (b) worker: where it can be determined that any other contract where the individual performs work or services personally for someone else. Limb (b) workers are entitled to core day one statutory employment rights.
- Self-employed: not defined in the legislation but understood as people who have their own profession or business and enter into contract with clients or customers to provide work or services for them and/or not obliged to do the work they contract personally.
Three tests have been developed by the Courts to establish whether an individual in an employee meaning the following requirements must be satisfied in order for an individual to be an employee:
How is employment status determined by employers or engagers?
Employment status is determined by the nature of the working relationship between an employer or engager and an individual. It cannot be decided based on what either parties would like the status to be. All facts of the working relationship need to be considered to determine the correct employment status. This will ensure individuals are receiving the correct rights they are entitled to within the qualifying period.
There are a number of factors that employers should consider when determining an individual’s employment status.
The individual is more likely to be an employee if they:
- have an employer, manager or supervisor with control over their workload and how their work should be done
- are required to work regularly unless they are on leave
- are required to do a minimum number of hours and expect to be paid for time worked
- can expect work to be consistently available – meaning the employer is required to provide work for the employee and the employee is required to perform work for the employer
- are employed to do the work themselves (provide a personal service) and only have a limited right to send someone else to do the work, that is send a substitute
- do not provide or use their own equipment
- are paid a wage and their financial risk is limited (for example the individual is paid by completing hours of work rather than by completing a task)
- are taxed as an employee meaning they are on PAYE (pay as you earn)
The individual is more likely to be a worker if they:
- have a substantial amount of freedom over where, when and how much they work and mostly do not have obligations to make themselves available for work, but should do work they’ve agreed to
- are under a degree of control from the employer when they are working (for example are subject to a recommended route or wear a uniform, rated by service users and subject to a penalty if they receive poor ratings, told to smile with their greeting)
- work for their employer(s) is often more casual, for example their work is less structured or not does not have regular guaranteed hours
- receive pay that is set by their employer, rather than negotiated by them
- employed to do the work themselves (provide a personal service) and only have a limited right or no effective right to send someone else to do the work i.e. send a substitute
- are an integral part of the business – such as assisting other members of a team or are subject to company disciplinary procedures
- do not tend to actively market their services as someone who regards themselves as self-employed to customers and clients
The individual is more likely to be self-employed if they:
- have significant freedom in when, where and how they work
- are responsible for the success or failure of their business, and can make a financial loss or a profit
- are able to send someone else to do the work without any restrictions (do not have to provide a personal service)
- can negotiate the price for the work – for example they are able to work for different clients and charge different fees
- use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
- are not integrated into the client’s business (for example no company email address, or not subject to disciplinary proceedings), and are able to turn down work if they do not like the fee or price
As the world of work changes it gives rise to some further developments and special circumstances.
This refers to the ‘digital/gig/platform/crowd’ economies. If an individual has all the qualities defined in employee or worker status, they are entitled to the correct statutory employment rights and protections.
Zero Hours Contracts
Zero hours contract is when an employer does not have to guarantee work for an individual and an individual is not obliged to accept work offered. Employment status will depend on the working relationship as a zero hours contract does not dictate employment status. An individual could qualify for any employment status for employment rights purposes depending on the working relationship.
An agency worker has a contract with an agency and works temporarily for a hirer. Agency workers may qualify for either employee or limb (b) worker employment rights, depending on the relationship with their employer. The employer is usually the employment business unless an intermediary, such as an umbrella company, is involved. It is important to identify who the employer is in each case, as the employer is responsible for ensuring the agency worker receives the correct employment rights.
Agency workers have certain protections regardless to whether they are an employee or a limb (b) worker including:
- the right to be paid the National Minimum Wage
- the right to paid annual leave
- whistleblowing protections
- pension auto-enrolment
They also have protections under the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 including:
- free access to the labour market
- the ability to move between jobs within the labour market
- to be able to use the recruitment sector with confidence
Finally, agency workers receive extra protections under the Agency Workers Regulations 2010 act, which means they are entitled to the same core employment and working conditions as an individual who has been recruited directly. Protections can apply from either day one, or sometimes within a 12-week qualifying period with the same hirer.
Freelancers, contractors, consultants and interims
The legislation has no definition of these categories but they are often self-employed. However, they could either be self-employed, a limb (b) worker or an employee depending on the working relationship, whether they work for a client or whether they are employed by an agency or umbrella company. They will be entitled to the rights of whatever status the working relationship determines.
Failing to recognise the correct employment status and provide individuals with the rights they are entitled to can lead to costly court cases and fines. Employment law is enforced by the courts, tribunals and various inspectorates, so should not be ignored.
If you have any further questions about employment status or would like to speak to someone in more detail, Indigo has a team of in-house experts that will be happy to help.
Contact us today for a free, no-obligation, Business Health Check.
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