Your employment status looks at the way your relationship with an employer or client is classified legally. You’ll usually belong to one of three main categories; employee, worker or self-employed, and your rights, benefits and responsibilities then depend on which category you’re in.

In this article we’ll look at what the difference is between each category, and why your employment status matters.

What is the difference between an employee, a worker, and being self-employed?

Your employment status can have a huge impact on what you’re entitled to receive, and on your working relationship with your employer or client. We’ll go over this section by section below.

Statutory entitlements, legal rights, and protections

Both employees and workers are entitled to receive minimum wage and holiday pay, but workers don’t have access to some of the benefits that employees do. For instance, being an employee gives you the right to things like sick pay, maternity/paternity leave, and access to a workplace pension scheme, but workers don’t have the same entitlements.

Workers also tend to lack benefits like statutory notice periods, the right to request flexible working, and protection against unfair dismissal after two years of service, all of which are typically given to employees.

As a self-employed person you won’t have an employer to sort these things out, so it’s up to you to put things in place!

Enforcing your rights

If you think your employer isn’t complying with your rights or if you face unfair treatment, understanding your employment status helps you get the right legal support. Different statuses may have different avenues for resolving disputes or seeking redress.

Employment contracts

Your employment status determines the type of contract you have with your employer. Employees usually have a contract of employment outlining their rights, responsibilities, and terms of employment. Workers are likely to operate on a more casual basis, being called in when needed or there are hours available, rather than working a set shift pattern or rota.

Being a worker also means you can turn down work. A good example of this is an Uber driver. You’ll usually be classed as a ‘worker’ so you’re entitled to minimum pay, but you’re not obliged to take every job request which comes in. Employees can’t usually turn down work without running into issues with their boss!

Any rights you have as a self-employed person working for a client will normally be restricted to those you include in your initial agreement or contract.

What tax you should be paying

Different employment statuses have different tax implications. Understanding your employment status helps you make sure you’re paying the right amount of tax and National Insurance contributions.

For example, employees have income tax and National Insurance contributions deducted from their pay, whereas self-employed people are responsible for paying their own taxes.

Immigration status

Your employment status may also affect your immigration status and right to work in this country if you’re not a UK national. It’s crucial to understand how your employment status impacts your ability to remain and work legally.
 

So, employees and workers aren’t the same thing?

No, not quite. You’re likely to be an employee if:

• Your employer sets out the work they want you to do and how you should complete it on a day-to-day basis (even if you actually do the work alone)
• Your contract says your work must be done by you only, and you can’t get someone else to do it for you, like a freelancer
• Your contract guarantees you’ll get a minimum number of working hours each week or month – and you have to complete them

 
However, you’re likely to be a worker if none of the above apply to you, except for:

• Under your contract you have to do your work yourself – you can’t give it to someone else
• Your employer isn’t a customer or client of a business you run

What if I work for an agency?

If you are signed up with an agency and work for several different different clients, you’ll be classed as an ‘agency worker’. You can check your rights on the Citizens Advice website.

In some cases, you may have a contract with an ‘umbrella company’ rather than the agency. If this is the case, it should show in your contract.

Why is it important to know my employment status?

Knowing your employment status will help you to understand and assert your rights, meet your obligations, and make more informed decisions about your career and financial situation. It means you can also be clear on things like paying tax. For example, if you’re self-employed then you’ll normally need to submit your own tax returns.

If you act as a contractor and hire subcontractors in the construction industry, you’ll also need to think about registering for the Construction Industry Scheme (CIS).

Does my employment status affect IR35 rules?

Understanding your employment status is crucial when it comes to IR35 legislation, as it determines whether you fall within the scope of IR35 rules or not.

IR35 aims to tackle tax avoidance by contractors who work as ‘disguised employees’ but operate through intermediary companies, like personal service companies (PSCs).

The effects of IR35

As a result, you may need to pay taxes and National Insurance contributions just like a normal employee, even though you are technically self-employed.

However, if your employment status is outside IR35, HMRC will treat your working relationship as genuinely self-employed. In this case, you can continue to enjoy the tax benefits associated with working as a contractor, like more favourable tax rates and the ability to claim business expenses.

It’s why being clear on your employment status is so important, not only for compliance with IR35 rules but also for managing your tax obligations and maximising your take-home pay as a contractor.

How can I check my employment status?

Start by looking at your employment contract, payslips, or any relevant documentation your employer has given you. This should show you your employment status, whether you are classified as an employee, a worker or self-employed.

You can also use the HMRC online tool to check your employment status for tax purposes. If you’re still not sure, we recommend getting in touch with your employer or a legal advisor for advice.

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