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Different kinds of employment status

The different ways you can be employed make a big difference to how you pay tax and National Insurance, save for your retirement and your rights at work. It’s important you understand your legal employment status so you know the rights you’re entitled to.

Employee

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Most working people in the UK are classified as employees and work under an employment contract. The contract sets out the benefits and duties of the ‘employee’ and the ‘employer’.

Employees have access to a wide range of in-work benefits including:

  • Statutory Sick Pay
  • holiday pay
  • Statutory Maternity, Paternity and Adoption Leave and Pay
  • Statutory Redundancy Pay.
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Employees are paid on a Pay As You Earn (PAYE) basis. This means tax and National Insurance contributions are usually automatically deducted.

You’re entitled to be paid at least the National Minimum Wage or National Living Wage. These rates vary depending on your age and if you’re an apprentice.

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Worker

Worker status is similar to being an employee, but on a more casual basis.

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Workers’ rights

As a worker, you’re entitled to some statutory rights – including the minimum wage and paid holiday. You don’t usually qualify for redundancy pay or minimum notice periods.

Access to statutory sick, maternity, paternity and adoption pay, as well as shared parental leave, varies depending on your employer.

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Agency workers

Agency workers have a contract with an employment or recruitment business, then hired out to work for the agency’s clients. This is usually on a temporary basis. However, your employment status can vary.

Most are classified as workers, with some employment rights – such as the National Minimum Wage and paid holiday.

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You can also be self-employed and work through an agency, often called a contractor.

You won’t have any employment rights, but you will have fewer obligations to the agency. For example, you’ll usually be able to send someone else in your place.

Less common are agency employees – who are on what’s called a ‘pay between assignments’ contract. Agency workers usually only get paid when they’re on assignment. But agency employees continue to get paid, even when they’re not working.

Agency employees have full employment rights, but often have more obligations to the agency. For example, it’s harder for them to turn down work and they might have to work a minimum number of hours each week.

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Entertainment and modelling agencies

If you signed up with an entertainment or modelling agency, the rules are slightly different. Agencies can charge fees for finding you work, but this depends on the kind of work you’re looking for.

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Self-employed

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Being self-employed is both an employment and a tax status. It covers a wide range of people – from those running their own business to freelancers and people working in the gig economy.

There are some main indicators to determine whether you’re self-employed:

  • you run the business and are responsible for its success or failure
  • you’re able to send someone else to do the work for you
  • you set the price for the work and can decide how and when the work is done
  • you use your own money to buy business assets and cover running costs
  • you’re responsible for fixing unsatisfactory work in your own time
  • you can work for more than one client at once.

 

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You’ll be responsible for paying your own tax and National Insurance contributions. so you will need to register as self-employed and fill in a Self Assessment tax return.

Rights if you’re self-employed

As you work for yourself, you have no legal right to employment benefits. However, you’re covered under certain Health and Safety legislation. And, in some cases, you’re protected against discrimination.

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Independent contractor

Independent contractors are self-employed, and usually provide highly skilled work to clients on an ‘as needed’ basis.

As you’re self-employed, you’ll need to register with HMRC to pay your own tax and National Insurance.

Rights as a contractor

This largely depends on who you’re working for and the contract you’ve agreed.

Independent contractors will often be classified as workers and have basic employment rights. This is usually if you’re on a three-month contract, or longer.

You’ll be covered under Health and Safety legislation. This is because the person employing you is responsible for maintaining a suitable working environment.

Construction Industry Scheme (CIS)

If you’re a subcontractor in the construction industry, it’s a good idea to enrol in the Construction Industry Scheme (CIS).

If you do, the contractor employing you will make tax and National Insurance contribution payments HMRC. This is similar to being paid on a PAYE (Pay As You Earn) basis.

You’ll still need to complete a self-assessment tax return and pay tax on your income. But what’s been paid by the contractor will be deducted from what you owe.

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Freelance

This is similar to a being contractor in that you’re contracted on an ‘as needed’ basis.

The main difference being freelancers generally don’t commit to working for the same company for long periods of time. Instead, they can work for various companies simultaneously.

Some examples of freelance workers include writers, journalists, graphic designers, video editors and photographers.

You’re classified as self-employed for tax purposes, but work for other people, rather than for yourself.

You’ll need to register for Self Assessment and submit a tax return each year.

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Rights as a freelancer

As you’re self-employed, your rights are limited. But you do have some rights under health and safety, and discrimination legislation.

Zero-hours contract

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A zero-hours contract is where you’re employed by a company, but they don’t guarantee you a set number of hours of work.

This kind of contract is becoming increasingly common in many sectors, including the hospitality industry, warehouse work and couriers.

You should be paid by PAYE, so you won’t need to register for Self Assessment to declare your income from zero hours contracts. However, as a self-employed person, you can agree to work on a zero hours basis and pay your tax through Self Assessment.

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Rights on a zero-hours contact

If you’re on a zero-hours contract, you’ll probably be classified as a ‘worker’. You’ll be entitled to basic employment rights, including the National Minimum or Living Wage and annual leave.

More rarely, you’ll be classified as an ‘employee’ and have access to full employment rights.

If you meet certain requirements, you might also be entitled to enrol in a workplace pension.

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Gig economy

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If you work in the gig economy, you’ll usually use an intermediary, such as an app or a website. This acts as a go-between – linking workers with customers.

In exchange for this service, the workers’ pay a charge to use the service. This is usually10 or 15% of what they earn from the work.

Gig economy platforms include:

  • ride hailing company Uber
  • food delivery company Deliveroo
  • courier Yodel.

The work is flexible, in that you can choose the hours you work and there’s nothing forcing you to work certain times.

At the moment, many people in the gig economy are classed as self-employed and will submit a Self Assessment tax return.

However, there have been many high-profile court cases recently challenging this classification. Some companies now class people operating on a gig economy basis as workers, which includes access to certain in-work benefits. But, this doesn’t apply to all work in the gig economy and many of these ruling are under appeal.

Rights in the gig economy

As you’re technically self-employed, you have very limited employment rights. However, there are many high-profile court cases involving large gig economy platforms challenging the idea that workers are self-employed.

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Apprentice

Apprenticeships are a way of gaining first-hand work experience and a qualification, while earning a salary. They take one to five years to complete and are open to anyone over the age of 16, who isn’t enrolled in full-time education.

If you’re under 19 or in the first year of an apprenticeship, you’re entitled to the minimum wage of £4.15 per hour (for 2021/22). This goes up if you’re over 19 and have completed your first year to either the National Minimum Wage or National Living Wage rate for your age.

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Rights as an apprentice

If you’re an apprentice working more than 33 hours a week, you’re entitled to the same benefits as any other full-time employee. This includes sick pay, annual leave and maternity and paternity pay.

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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