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Whether an individual is an employee, worker or self-employed carries a range of consequences for the rights and obligations owed between the individual and the person or business contracting for their work. It is paramount that an employer has a proper grasp of the employment status of their work force and any individuals they contract for work, which affects their tax reporting obligations. Failure to understand either can result in costly and time-consuming litigation or orders to back-pay taxes from HMRC.


An employee will hold the strongest position in terms of reciprocal rights and obligations with their employer. An employment relationship will usually arise from a contract:

  • that obliges that individual perform work personally and under control of the employer;
  • delineates rates of pay, a defined period for working; and
  • includes the benefits the employee is entitled to.

Generally, there must be “mutuality of obligation” between the employee to perform and the employer to be remunerated. An employer will in most cases supply materials and equipment required to perform tasks.

A contract of employment does not have to be in writing but an employer is entitled to request from their employer a written statement of employment within the first two months of their tenure. This must include the details of the employer, description of the work to be done and start date and end date rates of pay and entitlement to benefits, as well as geographic location.

Employees are entitled to be paid the National Minimum Wage, and cannot agree to be paid less with their employer.


Unfair dismissal and discrimination

If an employee has worked for an employer for the relevant qualifying period, they will have protection from unfair dismissal. If employment commences prior to 6 April 2012, this period is one year. If after this date, the period is two years.

An employer cannot dismiss an employee without good reason, nor can they do so in retaliation to the employee requesting contractual entitlements, taking maternity leave, whistleblowing, fulfilling jury service or taking part in strike action lasting three months or less.

Where an employer’s conduct renders the employee’s work situation so untenable they are forced to resign, this can constitute constructive dismissal. It is highly advisable for an employer to have robust and transparent disciplinary procedures in place so as to avoid claims their dismissal decision was arbitrary or unwarranted.

By virtue of the Equality Act 2010, an employer cannot embark on discriminatory conduct against an employee on the basis of a protected characteristic they possess. This includes race, gender, sexual orientation, age and disability.

Tax implications

An employee will pay taxes and National Insurance Contributions (NICs) through Pay As Your Earn (PAYE), taking the form of a deduction from their salary.


The status of worker will arise where one of the key elements of a contract of employment are missing, for example a lack of direct control or ability to outsource work to a third party. This category includes agency workers and casual workers.

Like employees, workers are entitled to be paid the National Minimum Wage, and cannot contract to be paid less with their employer. They are also entitled to maternity leave and paid holiday leave.

Unfair dismissal and discrimination

A worker does not have the right to challenge their dismissal as unfair. However, they are still subject to the same protections as employees under the Equality Act 2010, and can claim their dismissal was discriminatory in nature. Further, a worker cannot be dismissed in retaliation to whistleblowing.

Tax implications

Ordinarily, workers pay tax and national insurance contributions through PAYE. It is important to grasp the distinction between an agency worker and a self-employed contractor, as an employer may be sanctioned for avoiding PAYE obligations through improperly designating their staff as self-employed.

LLP members

In 2014, the UK Supreme Court ruled that LLP members were workers for the purpose of protection from retaliatory action for whistleblowing. As a result, LLP members who are dismissed for reporting on unlawful activity can receive unlimited damages.


A self-employed individual will have control over the day-to-day activities of their business and assume the financial risk of its operation. A self-employed individual will not usually work under a fixed contractually agreed term, rather, they will bid for periods of work and perform under their own time. It is also possible for them to outsource work to a third party, and work for more than one client at any given time.

Unfair dismissal and discrimination

A self-employed individual does not enjoy protection against unfair dismissal. However, they can claim protection against discrimination if they are refused work on the basis of a protected characteristic under the Equality Act 2010. Further, self-employed individuals are entitled to health and safety protection where they are working on the premises of the person who hired them for work.

Tax implications

A self-employed individual will not pay taxes through PAYE; rather, they will do so through HRMC’s self-assessment methods. There are separate registration and reporting periods in place for self-assessing individuals, as well as criterion for making deductions for business expenses.

HMRC determinations

It is imperative to note that HMRC may independently arrive at a different assessment of an individual’s tax liability status from their status under employment law. As such, it is important to consult a tax expert from the outset of hiring individuals for work.

Claims before the employment tribunal

If an individual in any of the above categories wishes to bring a discrimination claim, or, if entitled, an unfair dismissal claim, they must do so with three months less one day from the date of the incident giving rise to the claim.

Employment Law - Information on Fees

For information on fees and funding relating to Employment Law cases, please see our information page.

Contact our Employment Solicitors Mayfair and throughout London Today

The Employment Law Solicitors at Lewis Nedas Law act on behalf of both national and international companies in litigation and ADR, including assistance in drafting employment contracts and negotiating between employers and employees where disputes arise.

Our Employment Lawyers have joined the Office Essential Network, which is a specialist organisation aimed at assisting young start-up businesses requiring advice on employment issues and contracts.

To speak to one of our Employment Specialists, please call us on 020 7387 2032 or complete our online enquiry form.

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