Employment status can be a tricky subject, and it’s incredibly important to get yours right. The type of employment you’re in makes a difference to the kind of tax you pay, the rights and benefits you qualify for and even the kinds of refunds you’re owed. Here’s a quick employment status guide to help you keep on the right side of HMRC.
This is the most common employment status for people working in the UK. You’ve got a specific employer and some set rights and benefits. You pay your tax and National Insurance automatically through the Pay As You Earn (PAYE) system, and can claim refunds on some of your essential work expenses. You’ve probably (but not always) got a contract of employment that sets everything out for you.
It’s possible to have more than one employer, or to work as an employee while also making money from self-employment. For the jobs where you qualify as an employee, though, you can generally count on benefits like holiday pay and statutory payments for sickness, redundancy or parenthood. You’ll also have the right to be paid the appropriate National Minimum Wage or National Living Wage rate for your age and circumstances. On top of your benefits, you’ll also have some basic legal protections covering things like the breaks you can take, the hours you have to work and the way you’re treated.
If you’re classed as a “worker”, your situation is generally a little looser than when you’re an employee. You’ll still have a contract or similar arrangement, whether written or otherwise, and you’ll be expected to turn up for work whether you want to or not. Depending on your situation, you might be able to subcontract the work out to someone else under certain circumstances.
Like employees, you’ll pay your tax through PAYE, and qualify for the National Minimum Wage and some holiday pay. However, you might not get all the same rights, benefits or protections as an employee. Depending on your situation, you may be able to get Statutory Sick, Maternity/Paternity, Adoption or Shared Parental Pay. On the other hand might not get Statutory Redundancy Pay and may have less protection against things like unfair dismissal.
If you work through an agency, your contract with be usually with them, rather than the employers you‘re temporarily sent out to. There are specific rules for agency workers, covering everything from the fees you can be charged to the treatment and notice you’re entitled to. It’s crucial to keep in mind that not everyone who finds work through an agency is a “worker”. A lot of self-employed people use agencies as well. Also, if you use an agency to find a permanent or fixed-term position, you might be counted as an employee instead.
It’s also possible to be something called an “agency employee” on a “pay between assignments” contract. This means you get paid by the agency whether or not you’re actually out on a job. You get full employee rights for working this way, but usually less freedom and flexibility.
If you’re working through an agency in the entertainment or modelling business, there are specific rules that you need to know about. For instance, the agency is allowed to publish details about you (including things like photos) and can charge you a fee for finding you gigs.
Zero hours contracts are a tricky and slightly controversial form of employment. In technical terms, you’re an employee of a business, but your employer doesn’t have to guarantee you any specific number of hours of work. You’re generally supposed to be taxed PAYE, but some people without guaranteed hours do opt to be self-employed and use Self Assessment instead. If you’re on PAYE, you’ll generally be classed as a worker, rather than an employee, so you’ll get some basic employment rights, and may even be able to get on your employer’s workplace pension scheme.
Apprentices are PAYE employees who are in the process of stocking up 1-5 years of hands-on experience in an industry. If you’re over 16 and not in full-time education, an apprenticeship can be an excellent first foot on the employment ladder and a practical route to a valuable qualification. If you’re under 19, you qualify for a minimum wage of £3.90 per hour, which goes up after you’ve been working for a year. You won’t automatically qualify for full employment rights, benefits and statutory pay unless you’re working over 33 hours a week. If you are, though, you’re in basically the same position as a full-time employee.
When you’re self-employed, you don’t use the PAYE system to pay your tax and National Insurance. Instead, you file Self Assessment tax returns each year to tell HMRC about your profits and expenses. Under Self assessment, many of the day-to-day costs of running your business can count against the profits you’re being taxed on.
To work out if you’re self-employed, think about things like:
If you’re still not sure whether you count as self-employed, you can use HMRC Check Employment Status for Tax (CEST) tool to work it out for you. If you do qualify as self-employed, you’ll need to register and start filing tax returns.
The downside to all the freedom of self-employment is that you’re usually not entitled to most of the rights and benefits that employed people get. You do still have some protection about how you’re treated at work or how safe your conditions are, though.
There are actually a lot of different types of self-employment, with a few differences in how they’re handled in the law. Independent contractors, for example, are technically self-employed but often get classed as workers. This means they can get a few basic legal rights on longer-term contracts they take on. Obviously, any applicable Health and Safety regulations still apply as well.
Self-employed subcontractors working in the building trade almost always fall under a system called the Construction Industry Scheme (CIS). Under CIS, even though they still have to use Self Assessment, construction subcontractors get 20% of their pay deducted by the business contracting them. That money goes straight to HMRC as an advance payment against the tax the subcontractor will owe. There’s a section in the Self Assessment return paperwork that lets people hit by CIS claim back any overpaid tax the scheme leaves owing to them.
Freelancing is another form of self-employment. A typical freelancer does irregular work for a number of clients whenever they’re needed, without making any major or long-term commitments to any of them. Freelancers use Self Assessment for sorting out their tax and National Insurance, but tend to do all their work for other people businesses, rather than their own. Again, you don’t get a lot of employment rights as a freelancer, but you should still be protected under Health and Safety and Discrimination laws.
The gig economy is another tricky area of employment. Gig workers occupy a weird little strip of no-man’s land between employment and self-employment. In general, they work through an intermediary just like agency workers do. This intermediary sits in-between the worker and the customer, connecting them and taking a fee on transactions between them. Obviously, there’s a lot of flexibility in the work you take on in the gig economy. The downside is the same as for zero hours workers, though. You’re not guaranteed to get any assignments or set hours, for instance. You also won’t be getting a lot of employment rights, since most gig workers have tended to be classed as self-employed.
However, that’s not necessarily going to be true for every gig worker. In fact, when people have challenged their status in a court, it’s often turned out that they should actually be classed as workers. This means they should be using PAYE instead of Self Assessment for their tax, plus they’re entitled to worker-status employment rights. The bottom line is, if you’re working in the gig economy, you need to be very sure of where you stand. Your real employment status might not be what you were told to expect.
