The legal classification of freelancers has been a topic of significant debate and legal scrutiny. The distinction between employees, workers, and freelancers is essential, as it determines what rights and protections an individual is entitled to. Freelancers are typically considered self-employed, but the reality of their working arrangements can sometimes place them in the worker category, leading to disputes over employment rights. 

The Employment Rights Act 1996 does not specifically define "freelancer," but it distinguishes between employees, workers, and the self-employed. The lack of a statutory definition has led to uncertainty in determining whether a freelancer is genuinely independent or should be classified as a worker with additional employment rights. 

Legal challenges have arisen when businesses have engaged freelancers in a way that closely resembles an employment relationship. Courts and tribunals assess factors such as control, financial risk, and the right of substitution to determine if a freelancer is genuinely self-employed or meets the limb (b) worker criteria. 

Freelancer classification issues have been further complicated by: 

• IR35 tax legislation, which determines whether freelancers working through personal service companies should be taxed as employees. 

• The Public Interest Disclosure Act 1998, which expanded whistleblower protections beyond employees. 

• Recent Supreme Court cases, such as Uber BV v Aslam (2021), which have reinforced the principle that labels in contracts do not determine employment status—tribunals will look at the actual working relationship instead. 

The UK government has proposed simplifying employment status rules, potentially moving towards a two-tier systemthat would remove the worker category, leaving only employees and the self-employed. However, until such reforms take place, businesses must be careful when engaging freelancers to avoid misclassification risks. 

Many businesses assume that freelancers have no employment-related rights, but this is not always true. If a freelancer does not have the freedom to send a substitute or operates under significant control from the client, they may legally qualify as a worker, gaining access to rights such as minimum wage and holiday pay. 

Failing to properly classify a freelancer can lead to: 

• Legal claims for unpaid holiday pay and minimum wage. 

• Fines and penalties from HMRC for incorrect tax classification. 

• Reputational damage and financial risks for businesses. 

The distinction between freelancers, workers, and employees will continue to be relevant for businesses and individuals. Companies must carefully review contractual terms, tax obligations, and working relationships to ensure compliance with employment and tax law. 

This document provides a structured overview of freelancer status, key legal considerations, and risks associated with misclassification. 

A freelancer is considered a self-employed individual who: 

• Offers services to multiple clients rather than working for a single employer. 

• Engages in project-based or contract-based work, rather than permanent employment. 

• Exercises control over their working hours, methods, and contracts. 

• Does not receive employment benefits such as sick pay, holiday pay, or pension contributions from their clients. 

Under English law, freelancers are classified as self-employed and do not benefit from the same rights and protections as employees. Their contractual agreements typically reflect a contract for services rather than a contract of employment, meaning they are responsible for their own tax liabilities, business expenses, and work arrangements. 

Unlike employees, freelancers do not receive statutory benefits such as: 

• Statutory sick pay. 

• Maternity or paternity leave. 

• Protection from unfair dismissal under the Employment Rights Act 1996. 

• Employer pension contributions. 

A freelancer may sometimes fall into the legal category of a "worker" depending on the nature of their engagement, as determined by case law. However, this classification is highly fact-dependent and can lead to inconsistent outcomes, making it difficult to predict with certainty whether an individual is genuinely self-employed or qualifies for worker protections. This lack of legal clarity has been widely recognised as one of the main weaknesses of the current framework for classifying service providers. 

A freelancer may be classified as a worker if: 

• They are required to perform work personally (i.e., they do not have an unrestrained right to send a substitute). 

• The client has a significant degree of control over how, when, and where they work. 

• They are financially dependent on a single client for most of their income. 

If classified as a worker, they are entitled to certain statutory rights, including: 

• National Minimum Wage, as set out in the National Minimum Wage Act 1998. 

• Holiday pay under the Working Time Regulations 1998. 

• Protection from discrimination under the Equality Act 2010. 

Because worker status is determined on a case-by-case basis, businesses and freelancers should carefully assess contractual arrangements to ensure compliance with employment law and avoid misclassification risks. 

Freelancers typically exhibit the following characteristics: 

• Control over work: They decide their own hours, choose their clients, and negotiate their own contracts. 

• Financial responsibility: They handle their own taxes, including Income Tax and National Insurance contributions (NICs). 

• No job security: They are not guaranteed work from any client and can accept or decline projects as they choose. 

• Project-based work: They are usually hired for specific projects or for a limited time rather than having ongoing employment. 

Freelancers are different from employees and workers in several important ways: 

1. Employment Rights 

Freelancers do not receive employment benefits like: 

• Sick pay 

• Holiday pay 

• Protection from unfair dismissal 

• Employer pension contributions 

However, workers (a middle category between employees and freelancers) do have some rights, such as minimum wage and holiday pay. The difficulty is that UK law does not always make it clear whether someone is a worker or a freelancer, as each case depends on the specific working arrangement. 

One of the biggest differences between freelancers and workers is whether they must personally do the work or if they can send someone else in their place. 

• Freelancers can usually send a substitute—for example, a freelance video editor might hire another editor to complete a project if they are unavailable. 

• Workers and employees are expected to do the work themselves— for example, a camera operator working regular shifts for a production company would not normally be allowed to send a substitute. 

If a freelancer is required to personally perform work, they might actually be classed as a worker, meaning they could be entitled to employment rights. 

• Unlike employees, freelancers must register as self-employed and submit a Self-Assessment tax return to HM Revenue & Customs (HMRC). 

• If a freelancer charges £90,000 or more for their services in a year, they must register for VAT. 

• The government uses different tests for tax purposes than it does for employment rights, meaning someone could be considered self-employed for tax reasons but a worker for employment rights. 

• Employers must have liability insurance to cover their employees, but freelancers may not be covered and may need their own insurance. 

• If a freelancer makes a mistake that costs a client money, they could be legally responsible for it—unlike employees, who are usually protected by their employer. 

Freelancers must comply with tax regulations as set out by HM Revenue & Customs (HMRC), which include: 

• Registering as self-employed with HMRC and filing a Self-Assessment tax return. 

• Paying Income Tax and Class 2 & Class 4 National Insurance Contributions (NICs). 

• If annual earnings exceed £90,000 (as of 2024-25), registering for Value Added Tax (VAT) may be required. 

• Understanding IR35 legislation, which determines whether a freelancer is genuinely self-employed or should be classified as a "deemed employee" for tax purposes. 

A key complication is that self-employment for tax purposes does not always mean self-employment for employment law purposes. 

• Tax law only recognises two categories: employed and self-employed. It does not include a “worker” category like employment law does. 

• This means that an individual can be classified as self-employed for tax reasons but still be considered a worker under employment law, which gives them access to rights such as holiday pay and minimum wage. 

• Tax classification depends on multiple factors, such as control over work, financial risk, and contract terms. However, these factors are not always identical to the ones used to determine employment rights. 

• Because of this, it can be difficult to predict whether an individual is truly self-employed, leading to uncertainty for both freelancers and businesses. 

For this reason, both businesses and freelancers should carefully assess contracts to ensure they reflect the true nature of the working relationship and avoid potential legal and tax issues. 

Advantages for Businesses: 

• Cost Savings – Businesses avoid the expenses associated with full-time employees, such as salaries, pensions, and benefits. 

• Access to Specialist Skills – Freelancers bring niche expertise that may not be available in-house. 

• Flexibility – Freelancers can be hired on a project-by-project basis without long-term commitments. 

• Scalability – Businesses can quickly scale their workforce up or down depending on demand. 

• Reduced Administrative Burden – No need to manage payroll, employment benefits, or performance reviews. 

Challenges for Businesses: 

• Higher Per-Hour Costs – While businesses save on employee benefits, freelancer rates are often higher than salaried employees on a per-hour basis. 

• Limited Control – Freelancers operate independently, which means businesses may have less oversight over how work is completed. 

• Risk of Misclassification – If a freelancer is later deemed an employee or worker, the business may face fines, backdated tax liabilities, and legal claims for unpaid benefits. 

• Confidentiality and IP Protection – Businesses may need to take extra precautions with contracts to ensure data security and intellectual property rights are protected. 

• Continuity Risks – Freelancers may not be available for ongoing support or future projects, leading to a loss of knowledge and expertise when contracts end. 

One of the biggest uncertainties for businesses hiring freelancers is ensuring they are correctly classified. If a freelancer is later found to have been misclassified—meaning they were actually working as an employee but treated as self-employed—this could lead to: 

• Fines and penalties from HMRC for incorrect tax treatment. 

• Unexpected tax liabilities for both the business and the freelancer. 

• Legal claims for unpaid holiday pay, minimum wage, and other worker rights. 

Because of this risk, businesses must ensure that contracts, working arrangements, and day-to-day practicesaccurately reflect the true nature of the working relationship. Proper classification helps avoid financial and legal consequences. 

For further guidance, freelancers should refer to HMRC guidelines, IR35 legislation, and seek professional legal or financial advice when needed. 

Note: Material on this platform is not legal advice but we’re here to point you in the right direction if needed.