Important points to note when trying to understand if an individual is an employee or employed on a self-employed basis.

Differences between an employee and a self-employed contractor?

There needs to be a distinction between the 3 categories of employee, worker and self-employed independent contractor.

• Employers and employees have obligations that are implied into the contract between them (for example, the mutual duty of trust and confidence).
• Some core legal protections only apply to employees, most particularly the rights on termination of employment granted under the Employment Rights Act 1996. However, workers are also covered by some important protections including in relation to working time and the minimum wage. 
• Only employees are covered by the Acas Code of Practice on Disciplinary and Grievance Procedures 
• Only employees will be automatically transferred to any purchaser of their employer's business under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246)
• The tax treatment of a person providing services depends on their status for tax purposes as determined by HMRC, using similar but not identical tests to the employment law tests.
• An employer is vicariously liable for acts done by an employee in the course of their employment. This vicarious liability is unlikely to extend to independent contractors or self-employed individuals.
• Employers owe employees statutory duties relating to health and safety. Independent contractors may not be covered under these duties, although they will be covered under the organisation's common law duty of care in respect of occupier's liability.

Employee status:

There are several definitions of "employee" in statute, although none are comprehensive, and the courts have had to develop a number of tests to help with the correct classification. 

The Employment Rights Act 1996 (ERA 1996) contains the most significant legislative rights for individuals categorised as employees.

Under the ERA 1996, an employee is defined as:

"an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment".

Under ERA 1996, a contract of employment means:

"a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing".

The concept of a "contract of service" has been explored extensively in case law, where it is distinguished from a contract under which a person provides services as an independent contractor, also known as a "contract for services". 

Worker status:

The binary demarcation between employees and the self-employed was blurred when the hybrid status of "worker" was created by statute.

"Worker" status reflects the fact that some individuals, while not full-blown employees entitled to the whole range of employment rights, are nevertheless not fully "independent" and are deserving of some protection 

A worker is defined under ERA 1996 - "an individual who has entered into or works under (or, where the employment has ceased, worked under)

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual".

It is clear from the first part of the test (“limb (a)”) that all employees are workers. However, it is the second part (“limb (b)”) that has been subject to extensive scrutiny by the tribunals and courts to determine what types of working arrangements fall within its scope.

Individuals who are not employees but who satisfy the worker test are sometimes referred to as “limb (b) workers”. 

The elements required to satisfy the statutory definition of a worker under the ERA 1996 are:

• There must be a contract between the worker and the putative employer, whether express or implied.
• The contract must require personal service.
• The other party to the contract is not the customer or client of any business undertaking or profession carried on by the individual.
• There has also been much debate over whether mutuality of obligation is required as a separate part of the test, or whether it is part of the question about whether there is a contract at all. It would now seem that mutuality of obligation is relevant to determining worker status.