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Employment Status

Employment status is significant because it effects what rights that person has, what responsibilities a company has towards them, and what the tax position is of that person.

The following are the different statuses:

A worker is an individual who works under a contract where they agree “to do or perform personally any work or services for another party to the contract whose status is not … that of a client or customer”.
An employee is an individual employed under a contract of employment. The difference between a worker and an employee is a blurred line, but generally it accepted that workers are not an employee if they are free, without penalty, to accept or reject any offer of work made to them.
Further factors to consider on status are discussed below.

If someone doesn’t fall into any of the definitions above, then it is likely that they are self employed.

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Why does it matter?

Employment status matters because it effects what rights each individual has. For example, self-employed individuals cannot bring matters before the employment tribunal, have no entitlement to a regular salary, maternity or paternity pay, sick pay, holiday pay, etc.

Perhaps most importantly for some people, status also matters because of tax implications. We’re not tax lawyers here at Thrive, but broadly self-employed individuals are responsible for their own taxation, and responsible for registering for VAT, whilst employers must register employees for PAYE and National Insurance.

IR35 is the tax legislation which allows HMRC to collect additional payment where a contractor (or self employed person) is in fact an employee in all but name. IR35 is subject to changes in April 2020.

Factors Indicating Status

HMRC has a CEST tool which considers what status an individual might have from a HMRC perspective. But HMRC and the Tribunal do not always have the same tests and considerations, and do not always have to come to the same conclusions. This means that, whilst a HMRC might accept an individual’s tax status, there are some situations where a Tribunal may find that the individual was an employee or worker, affording them right to claim unfair dismissal/owed holiday pay/owed sick pay etc. These kinds of decisions would usually be made at a preliminary hearing at the Tribunal if there was a dispute about employment status.

The following factors are considered when deciding status:

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