Understanding your Employment Status

Matthew Taylor’s review of modern working practices was published earlier this month, and has added to ongoing debate and speculation surrounding employment and tax status. We've produced this plain-language guide to help you understand the conversation, and possibly help to clarify your own position.

Employed:

If you work for a company doing fixed hours and following your hirer’s direction, you’re employed. Despite a much-publicised rise in self-employment, most people working in the UK are still employees, with 60% of the total labour market being permanently employed, according to the Taylor Report.

Employee pay is taxed at source through PAYE and employees are entitled to a host of rights, protections and benefits, including national minimum wage, holiday and maternity/paternity pay, statutory sick pay and access to a workplace pension. After 2 years employees are able to claim for unfair dismissal and they qualify for redundancy.

Umbrella employees:

If you’re contracting through a compliant umbrella company, you’re employed. The umbrella company will give you an overarching contract of employment, which means you have one period of employment for all your assignments. This allows you to benefit from all the rights, protections and benefits afforded to an employee while completing a number of temporary assignments for a succession of hirers. Tax is deducted at source through PAYE as it is for all employees.

Self – Employed:

Genuine self-employment will see you assuming financial risk for your activities and exercising a high degree of autonomy in the manner with which you complete your work. Critically, self-employed workers are able to work for more than one hirer, or end-client.

Self-employed workers are responsible for their own tax and national insurance, usually by filing a self-assessment tax return each year. They don’t have the same rights and protections as employees, and are not entitled to national minimum wage, sick pay, holiday pay or maternity/paternity pay.

It’s not enough for the hirer to state that you’re self-employed, or for your contract to state it – much effort has been made in recent years to tackle “false self-employment” and unless the actual facts of your working life and relationships fit into the definition, you may not actually be self-employed.

Worker:

If you’re not genuinely self-employed, you’ll fall under the legal definition of “Worker”. This includes employees, but it also includes workers who are not employed. For example contractors who work for a single hirer who sets the terms of work (such as pay rates and hours) would fall into this status.

Not-employed workers are entitled to some of the rights afforded to employees, but not all of them. For example they are entitled to national minimum wage, sick pay, holiday pay and maternity/paternity pay but they can’t claim for unfair dismissal or redundancy.

It should be noted that this status exists as a legal status, but not a tax status. Workers are likely to be taxed as employees, even if they’re not employed. The Taylor report has called for not-employed workers to be given a separate legal designation of “dependent contractor” and for tax status and employment status to be aligned where possible.

 

If you have any questions about employment status or if Orange Genie can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.

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