Determining the correct employment status of your workers has become increasingly complex but also critically important. Businesses can engage individuals in various ways – as direct employees, contractors, or casual workers. Failing to properly categorize the employment relationship could expose you to challenges that could end up in an employment tribunal.
If a worker claims they are entitled to more rights under employment law than they are receiving, such as statutory sick pay or redundancy pay, the investigation would focus on the facts of the situation, not just what you may have agreed with the worker.
There is also a risk of an HMRC investigation if you have incorrectly categorized someone’s employment status, as the tax treatment differs for self-employed workers versus employees and workers.
Defining Employment Status
Employment protection rights have expanded substantially over time, but not all rights apply to all types of workers. Confusingly, an employee can be considered a “worker” but not vice versa.
There are three key employment status categories under the law: employee, worker, and self-employed. Employees have the highest level of employment protections, while the self-employed have very few.
Depending on the nature of the role, you may engage various workers for a specific period or on a zero-hours contract, calling on them as needed. In these cases, the distinction between “worker” and “self-employed” can become blurred, with workers able to claim protections not available to the self-employed.