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Employment status

The term 'employment status' is the arrangement under which an individual is engaged to work for an employer. There are three main categories of employment status:
  • employees, hired directly by the organisation
  • workers (for example, casual, agency or freelance workers, performing services personally for the organisation, or working on a seasonal basis)
  • the self-employed (for example, contractors).
Employees are covered by the full range of statutory employment rights. Workers have a more limited range of employment rights. In practice the dividing line between employee and worker can often be blurred.
Employment status affects employment rights and tax and National Insurance liabilities, and liability for accidents and loss caused by the conduct of an individual.

Recent developments

Changes to IR35 in private sector

These changes, originally set to come into force from April 2020, have been postponed to April 2021 as a result of the 2020 coronavirus outbreak.

Currently, PCPs working in the private sector are solely responsible for determining employment status. This has previously provided PSCs the opportunity and incentive to pay the wrong amount of tax. From April 2021, eligible large and medium sized organisations engaging contractors through intermediary companies will also be responsible for assessing the employment status of those contractors. Under the new rules, where workers are engaged through their own companies, responsibility to apply IR35, and to pay any associated tax and National Insurance contributions (NICs), will fall to the private company, agency or other third party paying the worker’s company.

To be eligible, an organisation must meet at least two of the below criteria:

  • have over 50 employees
  • have a net turnover in excess of £10.2m
  • have over £5.1m on their balance sheet.
Consultation looks at new rights for all flexible workers

A government consultation is examining whether new laws should be introduced to protect flexible workers and prevent 'one-sided flexibility'. The consultation is considering:

  • introducing compensation for workers who have shifts cancelled at short notice
  • providing workers with a reasonable period of notice of assigned shifts
  • protecting workers against detriments if they decline shifts which are offered on short notice.

The consultation will close in October 2019, and is asking for views from flexible workers who have experienced these practices in organisations.

New employment status legislation plus wide-ranging changes to worker rights

During 2017, Matthew Taylor published a review which, amongst other things, suggested that employment status needed clarifying and the 'worker' category should be renamed 'dependent contractor'.

Following a consultation on this matter, the government’s ‘Good Work Plan’ released in December 2018 has confirmed that legislation will be introduced to clarify current employment status tests. There will also be updates made to current guidance and online tests which are available to determine status.

Additional changes were also announced within the plan, although these also require additional legislation. These include making a right to a written statement of main terms a day-one right, increasing the required information which has to be included on written statements and providing a right for all workers to request a more stable contract. 

Changes to IR35 in public sector

The IR35 tax rules governing off-payroll working in the public sector changed on 6 April 2017. From this date, responsibility for deciding whether the rules apply shifts from the worker’s intermediary company to the public body, agency, or third party paying the intermediary, which will then be responsible for deducting relevant tax and NICs from the fee it pays to the intermediary organisation where appropriate.