Checklist: Determining the difference between an employee, a worker and an independent contractor (UK)

Introduction

This checklist provides in-house counsel, private practice lawyers and human resource professionals working in England, Wales and Scotland (GB) with guidance for determining employment status within their workforce. This checklist does not apply to Northern Ireland, where employment law is devolved to the Northern Ireland assembly.

This checklist can be used by employers during a recruitment process, in order to determine the correct employment status of the individual being recruited, or in any other situation when an employer needs to consider the correct employment status for members of its workforce.

This checklist addresses the following steps:

1. Understand the concept of employment status
2. Establish whether the individual is an employee
3. Establish whether the individual is a worker
4. Establish whether the individual is a self-employed independent contractor
5. Have an awareness of other relevant issues

This guide can be read in conjunction with How-to guide: Overview of employment law and Checklists: Identifying, reviewing and updating the terms of an employment contract, Drafting a staff handbook and Employment law considerations during a recruitment process.

Employers should be aware that the Employment Rights Bill 2024, introduced on 10 October 2024, aims to significantly enhance worker protections in the UK. Key provisions include granting day-one rights for unfair dismissal, paternity, parental, and bereavement leave, changes to sick pay and flexible working rights, protections against zero-hours contracts and restrictions on the use of ‘fire and rehire’ practices. New legislation will be introduced throughout 2025 and 2026. Further information can be found at UK Parliament: Employment rights bill and Employment Rights Bill: factsheets.

Step 1 – Understand the concept of employment status

Step 2 – Establish whether the individual is an employee

Step 3 – Establish whether the individual is a worker

Step 4 – Consider whether the individual is a self-employed independent contractor

Step 5 – Have an awareness of other relevant issues

Explanatory notes

The law on employment status in GB is complex for several reasons including the need to accommodate the wide variety of working arrangements that exist in the modern economy, the evolving nature of work, and the intricacies of case law, particularly in relation to the gig economy.

The labour market is characterised by a wide variety of working arrangements, from traditional full-time employment to part-time, temporary, and freelance work. The law must be flexible enough to account for these diverse arrangements while still providing appropriate protections and rights for workers and employees.

The nature of work has evolved significantly in recent years due to technological advancements, economic shifts, the covid-19 pandemic and changes in societal attitudes towards work. The growth of the gig economy has led to numerous legal disputes, as courts grapple with determining the appropriate employment status for gig workers.

Step 1 – Understand the concept of employment status

Before considering the specific question of what the employment status of an individual is, it is important to understand the legal background and why the issue of employment status is important.

1.1 Understand the different types of employment status

There are three main types of employment status in GB:

• employee;
• worker; and
• self-employed independent contractor.

1.2 Understand the legal framework for determining employment status

The statutory definitions of employee and worker are contained in section 230 of the Employment Rights Act 1996 (ERA 1996). However, the definitions are very limited in detail and the tests for how to establish employment status have therefore largely been established by courts and tribunals, resulting in a significant body of complex case law on this subject.

It is important to note that in GB employment law status is different to tax status although the principles involved are very similar. Employers must work out each individual’s status in both employment law and tax law. There are three possible status types in employment law, but tax status is binary, with individuals being either employed or self-employed. This note is focused on employment status for employment law purposes rather than tax law. Information about tax status can be found on the HMRC website.

1.3 Understand the reasons for determining employment status

Ensuring the correct classification of employment status is vital, as each status listed above attracts different rights and obligations which are discussed below.

• An employee works under a contract of employment, which can be written, oral, or implied. Employees have the most extensive rights and protections under employment law. They are entitled to benefits such as minimum wage, paid holidays, statutory sick pay, maternity or paternity leave, and protection against unfair dismissal.
• A worker is someone who provides services to a company or organisation but does not have the full range of legal rights and protections as an employee. Workers are typically engaged on a more casual or flexible basis. Workers are still entitled to certain benefits such as the minimum wage, paid holidays and protection against discrimination, but they do not have the same level of job security as employees.
• Self-employed individuals, also known as independent contractors, work for themselves and are not considered employees or workers. They run their own business, take responsibility for its success or failure, and have more control over the work they do. Self-employed people are responsible for paying their own taxes and National Insurance contributions and do not have the same employment rights as employees or workers. However, they have more freedom to choose their clients, set their working hours, and negotiate their rates of pay.

1.4 Understand the consequences of misclassification

There are several consequences for both the individual and the employer if the classification of employment status is incorrect. These include those listed below.

• Legal disputes and financial liabilities – if an individual believes they have been wrongly classified, they may bring a claim against their employer. Legal disputes can be time-consuming and costly for both parties, and if the employer is found to be in the wrong, they may have to pay compensation or backdated benefits to the affected individual. Group actions are common in this area, exposing employers to higher financial risk.

• Regulatory scrutiny – employers that repeatedly or systematically misclassify workers may attract the attention of regulatory bodies such as HM Revenue & Customs (HMRC), the Employment Agency Standards Inspectorate or the Health and Safety Executive. This could lead to investigations, fines or other enforcement actions.
• Tax and National Insurance implications – employers who misclassify individuals for employment law purposes are likely to make the same mistake in relation to tax status, due to the similarity between the two tests. If an individual is incorrectly classified for tax status, they or their employer may underpay or overpay taxes and National Insurance, leading to potential financial liabilities, penalties and interest charges from HMRC.
• Damage to reputation – employers who are found to have misclassified their workforce may face reputational damage, as this can be seen as an attempt to avoid providing appropriate employment rights and benefits. This can lead to negative publicity, loss of consumer confidence and, potentially, a decline in business.
• Loss of employment rights – if an individual is incorrectly classified as self-employed or a worker, they may not receive the full range of employment rights and protections to which they would be entitled as an employee.
• Impact on employee morale and productivity – misclassification can lead to a sense of injustice and dissatisfaction among workers which may, in turn, affect their morale, motivation and productivity. This can have long-term consequences for a company’s performance and success.

Step 2 – Establish whether the individual is an employee

When carrying out an assessment of employment status it is sensible to determine if the person is an employee as employees have the most, and widest range of, employment rights. To do this, employers must identify if the key three elements of an employment contract exist. This is known as ‘the irreducible core’ and was first mentioned in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497. If that irreducible core exists then potentially there is an employment contract and if not, there cannot be an employment contract.

If potentially there is an employment contract, then employers must determine if there is actually an employment contract.

2.1 Understand the ‘irreducible core’

The irreducible core is made up of the three elements listed below.

• Mutual obligations – are there mutual obligations on the individual and employer (see 2.2)?
• Personal service – does the individual have to personally provide the work or do they have a right to substitute (see 2.3)?
• Control – is there sufficient control of the individual by the employer (see 2.4)?

If the irreducible core (ie, all three elements listed above) is present, consider what the surrounding facts are in order to make a final assessment of whether or not the individual is an employee (see 2.5); if the irreducible core is absent, then you can conclude that the individual is not an employee, and go on to consider if the individual is a worker (see Step 3).

2.2 Are there mutual obligations on the individual and employer?

A clear mutuality of obligation is a strong indicator of an employee/employer relationship as it demonstrates the ongoing and reciprocal commitments between the employer and the individual as opposed to the shorter-term and temporary arrangements that tend to be seen with workers and the self-employed.

These mutual obligations typically include the obligations below.

• The employer’s obligation to provide work – in an employment relationship, the employer is generally expected to provide the individual with work to perform during the agreed working hours or within the terms of the contract. This obligation distinguishes employees from workers or self-employed individuals, who may not have guaranteed work or may only be engaged for specific tasks or projects.
• The employer’s obligation to pay for the work – the employer must compensate the individual for the work they perform, usually in the form of wages or a salary. This obligation also extends to providing other employment benefits and rights, such as paid leave, statutory sick pay and pension contributions.
• The individual’s obligation to accept and perform the work – the individual is generally required to accept the work provided by the employer and perform it to the best of their abilities, following the employer’s instructions and company policies. This obligation highlights the employee’s commitment to the employer and the employment relationship.

When assessing employment status, employers should check for contract clauses which expressly deny that there is any mutuality of obligation as, if genuine, these will negate any mutuality between the employer and individual. For example, a clause that says ‘the employer is under no obligation to provide the individual with a minimum number of hours of work in any given time period and the individual is under no obligation to accept any work offered’.

2.3 Does the individual have to personally perform the work or do they have a right to substitute?

The concept of personal performance focuses on whether the individual is required to perform the work personally or if they have the option to send a substitute to carry out their duties.

Personal service is a core characteristic of an employment relationship, as employees are typically hired for their specific skills, qualifications or experience. The requirement of personal service can be explicitly stated in the employment contract or implied through the nature of the work and the relationship between the parties.

Substitution refers to the ability of an individual to provide a substitute or delegate their work to someone else. If an individual has an unrestricted right to send a substitute, this may indicate that they are not an employee, and a clause that permits the sending of a substitute where the individual is ‘unable or unwilling’ to do the work this is likely to negate personal service.

However, if the right of substitution is more limited, this may still be consistent with an employment relationship, particularly if:

• the employer retains control over the choice of the substitute;
• the right to substitution is subject to the employer’s approval – for instance, the substitute must come from a pool of people the employer has approved, or the substitute is subject to the employer’s veto; and
• the circumstances on which substitution can take place are more restrictive (eg, the substitute is only allowed if the hired individual is ‘unable’ to attend).

If there is no clause in the contract providing for substitution then what has happened in practice will be relevant (eg, has the individual asked to send a replacement in the past and, if so, what happened?).

2.4 Is there a sufficient degree of control of the individual by the employer?

The third stage of the ‘irreducible core’ is to examine the extent to which an employer has control over the individual’s work. Control can have a number of aspects which are set out below.

• How the work is performed – if the employer dictates the specific methods, processes or techniques that the individual must follow while performing their tasks, this may indicate a higher level of control. In contrast, self-employed individuals or workers typically have more autonomy in deciding how to complete their work, as long as they achieve the desired results.
• When and where the work is performed – employers often determine the working hours and location of employees; self-employed individuals or workers usually have greater flexibility in choosing when and where to work, as long as they meet deadlines and fulfil their contractual obligations.
• The extent of supervision, guidance or direction provided by the employer is another aspect of the control test. Employees are generally subject to closer supervision and more direct instruction from their employer, while self-employed individuals or workers are more likely to have a lower degree of supervision, being responsible for managing their own work, again subject to their contractual obligations.

2.5 Look at the other surrounding facts

If 2.2-2.4 above are present then, potentially, there is a contract of employment. If so, employers need to look at the other factors in the relationship in order to conclude what the individual’s employment status is. These are fact sensitive but can include the ones set out below. This is not a checklist or a tick-box exercise and each case is decided on its own facts.

The following factors listed below may also be relevant.

• How do the parties describe their relationship? However, this is not determinative – see for example Autoclenz Limited v Belcher and others [2011] UKSC 41, where the Supreme Court held that a group of car valets were employees despite there being a written agreement in place that described them as independent contractors.
• What is the purpose of the relationship? For example, a prisoner undertaking work as part of their rehabilitation was held not to be an employee as that was not the purpose of their relationship with the potential employer (M&P Steelcraft v Ellis [2008] IRLR 355).

There is a helpful guide produced by the HMRC called Check employment status for tax. Although it is focused on the question of tax status, it may be a useful indicator of employment status.

2.6 Consider employee rights

Employees have access to the widest range of employment rights including:

• protection against discrimination;
• protection against unfair dismissal;
• protection against detriments for whistleblowing;
• right to redundancy payments;
• paid holidays;
• minimum wage; and
• protection against less favourable treatment if working part time.

2.7 Understand enforcement of employee rights

The individual can present a claim to an employment tribunal to enforce their employment rights and, in the case of a breach of contract claim, has a choice between starting their claim in the employment tribunal or the civil court.

Tribunal proceedings should be commenced within three months of the date of the act complained of subject to the tribunal’s discretion to extend time and make an adjustment for the time spent in Acas conciliation.

Civil court proceedings for breach of contract should be commenced within six years of the alleged breach.

Step 3 – Establish whether the individual is a worker

In situations where an employer has carried out an assessment and concluded that an individual is not an employee, do not overlook the question of whether the individual is a worker. All employees are also workers, but not all workers are employees.

3.1 Understand the definition of a worker

A worker is an individual who enters into a contract (which can be express or implied, written or verbal) with another party under which the individual:

• undertakes to do or perform personally any work or services for the other party to the contract; and
• the other party to the contract is not, by virtue of the contract, that of a client or customer of any profession or business undertaking carried on by the individual.

If this test is satisfied, the individual is a worker and the other party to the contract is the worker’s employer.

The legal definition of a worker can be found in section 230 of the ERA 1996.

The starting point for the analysis is not the contract between the parties as this gives the potential employer control. Rather the relationship must be viewed realistically and take into account the purpose of the legislation which was to consider the vulnerability and exploitation of workers and the need to safeguard their rights. The contract is, therefore, merely a factor to be considered.

3.2 Is there an obligation to personally perform the work?

The factors set out in 2.3 above in relation to employees are also relevant when answering this question in relation to workers. The question is whether any right of substitution is a limited one or not; for instance, is the replacement to be drawn from a limited pool of replacements who are subject to the same obligations as the individual?

3.3. Is any obligation to work personally owed to the potential employer?

If the obligation to work personally is owed to another person, then there can be no worker status between the individual and the potential employer.

3.4 Is the potential employer a client or customer of the business being run by the individual?

Consider whether the individual markets their services to the world generally or if they are integrated into the potential employer’s business. If the latter, then they are likely to be a worker.

The distinction is between those who are running their own business and those who are providing their services to another’s business and are integrated into it. However, the mere fact the individual is in business on their own account does not mean they cannot be a worker, as worker status is only excluded where the individual owes obligations to the potential employer because the potential employer is a:

• client (eg, of a professional) of the individual; or
• customer (eg, in a shop or as a tradesman) of the individual.

In order to determine whether or not the potential employer is in fact a client or customer of the individual, many of the relevant factors are those set out at 2.4 and 2.5 above when considering employee status. Relevant factors are:

• control and subordination;
• the degree of exclusivity of the engagement;
• the length of the engagement;
• the method of payment;
• the provision of equipment;
• if the worker set the price themselves; and
• whether the individual is subjected to control by the potential employer, and if these controls are inconsistent with being self-employed.

Consider the example of an independent contractor below.

3.5 Consider workers’ rights

Workers have a number of important statutory rights including:

• paid holidays;
• minimum wage thresholds;
• protection from less favourable treatment if working part time;
• protection from discrimination;
• the right to receive itemised payslips (post 6 April 2019);
• the right to receive written statements of terms of employment (post 6 April 2019); and
• protection against detriments for whistleblowing (note the extended definition at 5.1 below).

3.6 Understand enforcement of workers’ rights

A worker can bring a claim to enforce their rights in an employment tribunal. The claims must be started within three months less a day from the date the right is breached, subject to an extension for time spent in Acas conciliation.

Step 4 – Consider whether the individual is a self-employed independent contractor

If the individual is genuinely in business on their own account providing their services to clients or customers then they are self-employed.

Employers should decide each employment status determination on its own facts, taking into account all relevant information relating to the considerations outlined in this checklist. It is not possible to undertake a tick-box exercise when dealing with employment status and employers should be mindful that anomalies to the more obvious scenarios do exist. For example, a requirement to provide personal service may not prevent an individual from being self-employed in a scenario where the individual’s services are being engaged by a business due to the individual’s status as an expert in their field, and all other factors point to self-employment status.

4.1 Be aware of the rights of self-employed individuals

Self-employed individuals have no employment rights other than those rights and obligations set out in the contract. See 5.1 below in relation to protection against discrimination and whistleblowing in certain circumstances.

4.2 Understand claims from self-employed individuals

A self-employed person can bring a claim for breach of contract in the civil courts. They cannot bring such a claim in an employment tribunal as this requires them to be an employee or a worker. A breach of contract claim in the civil courts can be started up to six years after the alleged breach.

Step 5 – Have an awareness of other relevant issues

There are a number of other specific issues related to employment status that are relevant to employers.

5.1 Extended definition of worker for discrimination and whistleblowing legislation

The Equality Act 2010 (EqA 2010) and whistleblowing legislation (the Public Interest Disclosure Act 1998 and the ERA 1996), provide extended definitions of a worker, offering protections to a broader range of individuals beyond traditional employees or workers. These extended definitions are designed to ensure that more individuals can benefit from the rights and protections these laws afford.

In the EqA 2010, protection is extended not only to employees but also to individuals who work under a contract personally to do work. This broader definition covers those who work under an employment contract, as well as individuals who work under a contract for services, such as some freelancers, contractors and agency workers.

The whistleblowing legislation also uses an extended definition of worker to provide protection for individuals who make a qualifying disclosure in the public interest. The extended definition covers not only employees but also some individuals who are not employees but still perform work under a contract (such as agency workers, freelancers and contractors). Additionally, the definition includes individuals in specific professions or positions.

For further information about whistleblowing, see How to-guide: Understanding the legal protections for whistleblowers.

5.2 Agency workers

An agency worker, sometimes referred to as a temporary or contract worker, is an individual who is engaged by an employment agency or a recruitment company to perform work for an end user, which is the client organisation where the work is carried out.

In this arrangement, the agency worker usually signs a contract with the employment agency, which outlines the terms and conditions of their work, including pay, working hours, and other relevant details. The employment agency is responsible for finding assignments for the agency worker and handles administrative matters such as payroll, tax deductions and, in some cases, benefits. As a result, the agency worker is often considered to be employed by the employment agency.

The end user is the organisation where the agency worker performs their duties. The end user usually has control over the agency worker’s specific tasks, working hours and workplace conditions during the assignment. However, the end user does not have a direct employment contract with the agency worker. Instead, the end user has a separate contract or agreement with the employment agency outlining the scope of work, fees and other terms related to the provision of temporary staff.

Despite the absence of a direct employment relationship with the end user, agency workers are entitled to certain rights and protections while working for the end user. Under the Agency Workers Regulations 2010, after completing a 12-week qualifying period with the same end user, agency workers are entitled to the same basic employment conditions as comparable permanent employees of the end user, including in relation to pay, working hours, and holiday entitlements.

Generally, it will only be in exceptional circumstances that an agency worker will be considered to have an employment relationship with the end user.

5.3 Employee shareholders

An employee shareholder is someone who works under an employment contract and owns at least £2,000 of shares in the employer’s company or parent company. Employee shareholders have most of the same rights as employees and workers, save for some exceptions including, in particular, limited protection against unfair dismissal, no right to a redundancy payment and very limited right to request flexible working.

5.4 Office-holders

An individual who is appointed to a position by an organisation but does not work under a contract or receive regular payment may be an office-holder. This includes:

• company directors and secretaries;
• appointments under the internal constitution of an organisation, such as club treasurers; and
• appointments under a trust deed, such as trustees of a charity.

Office-holders are neither employees nor workers. However, in some cases an individual may be both an office-holder and an employee or a worker; for example, it is common for an individual to be both an employee of a company and a company director. Employers should ensure that they do not overlook the possibility of an individual having employee or worker status alongside being an office-holder.

Additional resources

HMRC – Check employment status for tax

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