Employees vs Independent Contractors United Kingdom
Updated as of 2017
Introduction
In the United Kingdom, "employees" benefit from greater protection in law than independent contractors. These protections include, for example, the right to not to be unfairly dismissed, the right to redundancy pay and the right to maternity leave, paternity leave and shared parental leave. Employers and employees are also under certain duties and have rights under the health and safety legislation.
In the United Kingdom, there is a wider category of labour known as "workers" who only benefit from some of the protections, which are afforded to employees. Some of these protections are derived from statute (and in some cases, European law) and include for example, the right to holiday pay, the right to rest breaks, the right not to suffer deductions from wages, and national minimum wage. To be an "employee" or a "worker", there must be a personal obligation to execute the work in question, but the term "worker" is defined more widely than "employee" so that it includes certain types of independent contractors, home and casual workers. All employees fall within the definition of "worker" but not all workers will be employees.
Disputes may arise when an individual asserts a particular right in circumstances where the employer has previously designated the individual as an independent contractor (commonly requested rights include the right to holiday pay and the right not to be unfairly dismissed). The distinction between "employee", "worker" and "independent contractor" is therefore of critical importance to determine the level of protection afforded to the individual in question, as well as the obligations on the employer.
Equally as important are the tax implications of the status in question. The UK tax authority, HM Revenue & Customs (HMRC) distinguishes between self-employed labour (independent contractors who are genuinely pursuing any profession or business activity on their own account) and employees; HMRC does not recognise the wider category of "workers". There are certain tax and national insurance benefits from being self-employed so HMRC may dispute how an individual has been categorised. The test applied by HMRC to determine self-employed/employed status is similar to the test applied by the Employment Tribunal when determining employment status for employment protection purposes, but confusingly, neither is determinative of each other. Furthermore, because the UK tax rules do not recognise worker status, an individual can be classed as a "worker" for employment protection purposes but still retain self-employed status for tax purposes.
