What is 'Employment Status' and Why Does it Matter?

August 17, 2021

The confusing issue of ‘employment status’ has been a hot topic in the gig economy over the last few years. Some high-profile litigation has made headlines, for example the Uber drivers’ case that resulted in triumph for the drivers of the renowned transport app, who are now viewed as workers instead of self-employed. The result of this case means that drivers, now recognised as workers, can gain access to a whole host of employment rights previously denied to them.

These cases have intensified conversations surrounding the rights owed to employees, workers, and the self-employed and prompted promises from the Government to legislate and provide clarity for employers and individuals alike. But, with promises of help dragging its' feet, what is it that you actually need to know, and what is all the fuss about?  

When someone is hired to do work, they could fall within one of three main categories:  

  • Employee
  • Worker
  • Self-employed consultant/contractor (also known as a freelancer)

The first thing to note is that the label you give your new hire will not really influence their status. There is a long list of factors that will decide their true status in law – and you cannot override this and agree between yourselves a status of your choosing. To make things more difficult, all these factors are weighed up and there is rarely an easy answer either way.  

The same complicated legal issue affects FTSE 100 companies as it does start ups and SMEs, but with one big difference - the size of the legal budget.

Why is this important and why should you care?

Each category has its own legal framework and it’s important to know, when growing your business, what key rights your people have and what obligations you owe to them. Without this understanding, you cannot be sure you are treating your team fairly and you may be unwittingly creating legal risks. If you don’t know what legal rights are in play, you cannot know the consequences of your decisions and actions and when these can give rise to claims.  

For example, you need to know whether you ought to pay someone for holiday taken and whether, when terminating a contract, it could give rise to a Tribunal claim of unfair dismissal.  

At one end of the spectrum are employees, who have the most legal protection and rights, and you as their employer have the most duties and obligations. At the other end are self-employed consultants, who have very limited rights and the relationship is mainly governed by the contract – which certainly makes things more predictable. Somewhere in the middle, at an unspecified point dependent on a long list of factors, are workers. They are a hybrid between the other two categories and have some rights, but not as many as employees.  

Often, the distinction between employees and workers can be the most nuanced and difficult. In 2021, the Labour party announced that it would merge these two categories and create a single status of ‘worker’ - which would certainly help to simplify things. Let’s hope the government follows suit.  

But there’s more to the story than just complex definitions, legal debate and politicking. Other areas of law and regulation interact directly with employment law and status, including tax, intellectual property rights and data protection (in case you needed more reasons to care) and there are also insurance and health and safety implications to consider.  

And if you’re gearing up for a sale or fund raise, not having your house in order and having sham contracts with ‘freelancers’ could potentially look unprofessional and deter prospective investors or purchasers.  


We have focused on the key employment-related legal rights (in addition to the contractual rights in the individual's agreement with you) and put together an ‘at a glance’ table explaining what these rights are and who is normally protected.  

There are many, many more rights and types of claims relating to employment and workplace issues and there are also various eligibility requirements which we haven't included here. This table is intended to give you a snapshot of some of the key and more common rights to be aware of.

If you liked this ‘whistle-stop tour’ on employment status, check out our employment insights where we keep you up to date on the legal shifts you need to be aware of.

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