Employment status

The terms employee and worker are defined in employment law. These definitions have been further refined by case law that has evolved over many years.

All employees are entitled to employment protection rights - though some rights require a minimum period of continuous service. See continuous employment and employee rights.

A number of core employment rights, such as the national minimum wage and regulations on working time, including rest and paid annual leave, are also available to the wider category who qualify as workers.

Contracts

A person's employment status will depend on whether their contract is:

• a contract of service, ie employment (employee)
• a contract for the personal performance of work (worker)
• a contract for services (self-employed).

Employee

An employee is someone who works for you under the terms of an employment contract. A contract of employment could be written, oral, or implied. Note that partners in firms are not usually employees, they are people carrying on a business with a view to profit; this is entirely different to an employment relationship. However a 'salaried partner' might have employment status or be an employee.

Worker

The category of worker is wider and includes any individual person who works for you, whether under an employment contract or other type of contract, but is not self-employed. This category can include casual workers, agency workers, or some freelance workers but the terms of the contract will determine their employment status.

Casual working in general

The word 'casual' is not a legal term. It is important to note that because someone is termed a 'casual worker' it does not mean that they cannot have any employment rights. The word 'casual' is not in the Employment Rights (NI) Order 1996. Each case depends on its facts; see the five key tests below.

The law when determining someone's employment status

For the purposes of income tax and National Insurance contributions (NICs), the agency (when acting as an employment business) providing an agency worker or casual worker is responsible for operating PAYE (Pay As You Earn) and accounting for NICs for that worker.

If there is a dispute about employment status and employment rights (or taxation), this can ultimately only be decided by the courts. The courts have devised a number of tests that examine the individual's circumstances and consider all aspects of the relationship - including what a contract may or may not say - to establish employment status.

Five key tests when legally determining employment status

There are five key tests the courts will consider:

• control - whether you as an employer can instruct them how and which tasks to perform
• integration - whether they are an integral part of your organisation
• mutuality of obligations - whether they are obliged to carry out the work offered, and whether you are obliged to offer work to them
• substitution - whether someone else can be sent by the worker to do the job
• economic reality - whether they are in business on their own account, eg where they bear the financial risks of failure to deliver the service or can profit from their own sound management of the task

Recent trends have been towards the application of a 'multiple test' which takes account of all relevant factors. However, if you are unsure of the employment status of someone who works for you or have concerns, you should seek advice.