You bring someone in as a contractor, agree a day rate and ask them to invoice. Their employment status still depends on the working relationship, with separate tests for employment rights and tax.
Those decisions may make sense when work starts. Add regular shifts, close supervision and an expectation that they always turn up, and your obligations can change.
Start with how the arrangement works, then decide which contract, payroll treatment and protections belong with it.
Key takeaways
- Employment rights recognise three categories: employee, worker and self-employed. Tax has two broad categories: employed and self-employed.
- Contract wording matters, but it doesn’t settle status when the wider evidence points elsewhere.
- A wrong decision can leave your business facing unpaid holiday, payroll liabilities, pension contributions and tribunal claims.
The three employment status categories
For employment rights in Great Britain, employees receive the widest protection. Workers have fewer rights, while genuinely self-employed contractors generally rely on their commercial agreements. Northern Ireland has separate employment legislation.
The main differences affect what you must pay, provide and protect.
| Status | Main rights and obligations |
|---|---|
| Employee | Worker rights, plus statutory sick pay, maternity leave, unfair dismissal protection and statutory redundancy pay, subject to applicable eligibility conditions. A contract of employment is relevant evidence, but its label doesn’t determine legal status. |
| Worker | National Minimum Wage, paid annual leave, rest breaks, whistleblowing protection and pension auto-enrolment where eligible. Usually no ordinary unfair dismissal protection or statutory redundancy pay. |
| Self-employed | Generally no statutory holiday pay, minimum wage or employee dismissal rights. Contractual rights, health and safety duties and some discrimination protections may still apply. |
Employees are also workers in the broader statutory sense. In everyday HR discussions, “worker” usually means someone who qualifies for the middle category without being an employee.
Section 230 of the Employment Rights Act 1996 sets the legal test for worker status. It requires a contract, personal performance of work and a relationship where the engager isn’t a client or customer of the individual’s own business.
The government’s worker rights guidance sets out the main protections. Statutory holiday is generally 5.6 weeks, capped at 28 days; bank holidays can count towards that entitlement.
How courts decide employment status
Courts consider the whole arrangement. No single feature, including invoicing, owning equipment or using a contractor agreement, decides every case.
The 1968 Ready Mixed Concrete judgment sets out three conditions for a contract of service: work and skill supplied for remuneration, sufficient control, and other terms consistent with employment.
Personal service and control
Personal service means the individual must do the work themselves. A genuine right to send someone else can point away from worker status. A tightly restricted substitution clause may carry much less weight.
The right of control can include setting working hours, allocating tasks, fixing pay and directing how work is done. Your business doesn’t need to supervise every minute for control to exist.
Look at the rights you hold as well as the instructions you give. Someone’s specialist skills don’t automatically make them independent.
Obligations and running an independent business
Mutuality of obligation concerns commitments to provide work and perform it. Ongoing obligations can support employee status, although refusing future assignments doesn’t automatically remove rights during an accepted assignment.
Then consider whether the person is genuinely self-employed and operates a business of their own. Do they negotiate prices, market services, bear financial risk and put defective work right at their own expense?
Several clients can support independence, but aren’t decisive. Assess each engagement separately.
What the status cases show in practice
Two Supreme Court decisions show why your written agreement needs to match the obligations your managers actually impose.
Autoclenz: written freedoms need substance
In Autoclenz Ltd v Belcher in 2011, car valeters’ agreements described self-employment and included substitution provisions. The Supreme Court upheld findings that they were employees.
The court examined the true agreement, including bargaining power and how the arrangement operated. Written terms remained evidence, but didn’t settle the issue.
For your business, a substitution clause needs more than a place in the template. If managers expect one named individual to attend and don’t permit genuine substitution, the evidence may undermine that wording.
Uber: choosing hours didn’t settle the question
In Uber BV v Aslam, decided on 19 February 2021, the Supreme Court upheld worker status for the drivers concerned.
Uber controlled fares, contractual terms and aspects of service delivery. Drivers’ freedom to choose when to log on didn’t outweigh those controls.
The decision concerned the arrangements before the court, rather than every platform worker. Its practical lesson is broader: flexibility over when work starts doesn’t, by itself, establish self-employment.
Tax status and IR35 follow a separate test
Finance and human resources need the same evidence, but they are answering different questions.
PAYE doesn’t settle employment rights
Tax recognises employed and self-employed status, without a separate worker category. Employment income is generally handled through PAYE; self-employed trading income is generally reported through Self Assessment.
Someone can be a worker for employment rights while being self-employed for tax. And applying employee-style tax deductions under IR35 doesn’t automatically grant employee rights against the client.
Record both conclusions. A payroll decision shouldn’t become your only explanation for denying holiday pay or other protections.
Who decides an IR35 engagement?
IR35 was introduced in 2000 for services supplied through an intermediary, commonly a personal service company. The off-payroll working rules were extended to medium and large private-sector clients on 6 April 2021.
The client normally determines status and issues a status determination statement. The fee-payer generally handles deductions where required. These responsibilities can sit with different organisations.
Under the older company-size thresholds, at least two conditions had to be exceeded for two consecutive financial years: £10.2 million turnover, £5.1 million balance-sheet total or 50 employees.
For financial years beginning on or after 6 April 2025, the financial thresholds rose to £15 million and £7.5 million. The employee threshold remains 50, and timing rules affect when a size change alters responsibility.
HMRC’s client guidance explains those rules. For a small private-sector client, responsibility generally remains with the intermediary.
What getting status wrong costs your business
Misclassification can create several liabilities at once. Where the working reality doesn’t support a self-employed label, false self-employment can lead to arrears, though the label alone doesn’t prove a breach.
Depending on the individual’s status and eligibility, they may claim unpaid holiday or minimum wage arrears in an employment tribunal. Someone who establishes employee status may also pursue dismissal or redundancy rights where the conditions are met.
HMRC may seek unpaid PAYE and National Insurance, with interest and penalties where applicable. Pension duties can create a separate problem.
And changing the contract heading won’t remove liabilities that have already built up.
A practical review should follow three steps:
- Collect the agreement, invoices, rotas, messages and evidence of who controls the work.
- Record separate employment-rights and tax assessments, including the reasons for each conclusion.
- Correct contracts, payroll, holiday records and pension arrangements where the findings require it.
Give one person responsibility for completing the review. Managers, payroll and your HR team all hold part of the evidence.
Our guidance on HR risk assessments explains how to turn those findings into documented actions rather than another unfinished spreadsheet.
Casual contracts and volunteers need different treatment
“Casual”, “temporary” and “zero-hours” describe arrangements, but don’t decide legal status. A casual worker may have worker rights, while regular commitments and wider obligations may support employee status.
Review the pattern your managers have created. A document offering occasional work can become a poor description of someone attending the same shifts every week.
Genuine volunteering should leave the individual free to decline tasks, choose when to help and stop volunteering. Reimbursing actual expenses differs from paying wages.
Payments, contractual benefits and compulsory attendance can change the assessment. Calling someone a volunteer won’t resolve those features.
Keep volunteering agreements and paid-work arrangements separate. The paperwork should describe what you expect, rather than promise freedoms your managers won’t allow.
Where employment status reform stands
The three-category framework remains the starting point for employment rights in Great Britain. Changes to individual rights don’t automatically replace the underlying status tests.
The EU Platform Work Directive was adopted in October 2024. It introduces a rebuttable presumption of employment where facts indicate direction and control, with a member-state implementation deadline of 2 December 2026.
It isn’t UK law and doesn’t automatically make every platform worker an employee.
For UK employers, existing contracts still need assessment under the rules applying to the engagement. A reform announcement doesn’t remove today’s obligations.
Employment status FAQs
What should someone put on an employment status form?
Use the category relevant to the question. A tax form may offer employed or self-employed, while an employment-rights assessment may include worker status. Someone can hold an employed job and run a separate self-employed business at the same time.
Does a casual contract remove holiday or sick pay rights?
No. Workers generally qualify for statutory holiday, and casual or zero-hours arrangements don’t automatically exclude statutory sick pay. Sick pay has its own eligibility rules, so assess those rather than relying on the contract heading.
Is eligibility to work the same as employment status?
No. Right-to-work eligibility concerns permission to work in the UK. Employment status concerns the relationship and its rights and obligations. Complete the appropriate right-to-work check before employment starts, retain the evidence and record the date separately from your status assessment.
Put the status decision into practice
Assess rights and tax separately, then make your contracts, payroll and management practices follow those decisions. A recorded assessment gives your team a basis for acting consistently.
At HRoes, we’re employment law specialists, and award-winning lawyers created our employment protection solution. It combines HR consultancy, software, learning and insurance-backed tribunal cover up to £250,000, subject to policy terms and following our advice.
Book an intro call to discuss keeping your employment decisions, advice and records together.