Historically, it was recognised that miscarriages of justice can occur if the distinction between “employees” and “self-employed” people is too strict. The Employment Rights Act 1996 created a new hybrid status of “worker” so that some people who are not fully “independent” are given some statutory rights.  

The wording used in the Employment Rights Act leaves scope for flexibility: 

“an individual who has entered into or works under…: 

1. A contract of employment, or 

2. 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.” 

This means that all employees are workers. This is not controversial because employee rights are broader than a worker’s rights. 

This also means that people who meet the paragraph (b) criteria are considered workers. This has proven controversial because workers have some employment-related rights, whereas genuinely self-employed individuals do not qualify for those rights. 

Those workers are sometimes referred to as “limb (b) workers.” Unfortunately, extensive debate and numerous court cases have taken place to clarify the meaning of limb (b). This situation was compounded when the Public Interest Disclosure Act 1998 introduced a different definition, expanding the pool of potential workers eligible for whistleblowing protection. 

The debate continued after the Equality Act 2010 came into force, which uses yet another definition of employment. Despite being different, the courts have treated the 2010 definition as essentially the same as limb (b). 

In 2017, there was a move to try to rename “workers” as “dependent contractors,” but this has now been superseded by the current government’s plans to transition towards a simpler two-part framework for employment status, so that there will only be “workers” and “self-employed.” 

Until those new laws are brought into force, the distinction between freelancers, workers and employees will remain important. Please see our other guides on freelance and employee status. 

So, businesses must recognise that different employment rights apply in different circumstances for a few more years. It is risky to take the view that there are only “employees” and “freelancers” and that only “employees” have employment-related rights.  

One solution might be to ensure everyone is treated equally, regardless of their employment status. A business can grant freelancers the same rights as employees in their contracts. For some businesses, the costs of those extra rights might be balanced by the increased reputation and staff productivity and the decreased costs of repeated recruitment cycles. 

To help a business understand its options, this note sets out a summary of workers’ rights. 

So, in summary, all employees are workers. Also, under limb (b), some employment rights are given to everyone who agrees to perform work or services for another party personally but does not operate as an independent business entity. A person is likely to be classified as a worker if: 

• Their work is relatively casual and does not follow a structured or guaranteed pattern. 

• They are usually required to perform the work personally. 

• The employer does not guarantee regular hours. 

• They have a limited obligation to accept work but are expected to complete the agreed-upon tasks. 

• They do not provide services to clients or customers as an independent business. 

The individual may be classified as a self-employed contractor if these conditions are not met. However, as noted above, whistleblower rights are granted to a broader definition of worker. 

While workers do not enjoy the full range of employment rights that employees do, they are entitled to certain fundamental protections, including: 

• A written statement of employment particulars, setting out job responsibilities. 

• The National Minimum Wage, ensuring fair pay. 

• Paid holiday entitlement, typically calculated on a pro-rata basis. 

• Payslips, detailing earnings and deductions. 

• Protection from whistleblowing retaliation, safeguarding workers who report illegal or unethical practices. 

• Protection against discrimination, ensuring equal treatment regardless of protected characteristics. 

• Protection from less favourable treatment for part-time workers compared to full-time employees. 

• Health and safety protections, including protection from detriment for refusing to work in unsafe conditions. 

However, workers are not entitled to: 

• A minimum notice period for termination. 

• Unfair dismissal protection. 

• Statutory flexible working requests. 

• Time off for dependants. 

• Statutory redundancy pay. 

HMRC may regard someone as self-employed for tax purposes even if they have a different status in employment law. That means that a business must check if someone is a worker for both employment law purposes and for tax law. 

Workers are subject to different tax and National Insurance (NI) obligations compared to employees. Key points include: 

• Employers must deduct income tax and NI contributions under PAYE (Pay As You Earn) for workers, similar to employees. 

• Workers typically do not have access to statutory sick pay (SSP) or other long-term employment benefits unless they meet contribution thresholds. 

• Employers are not required to pay employer NI contributions or offer pension schemes unless the worker qualifies under auto-enrolment rules. 

Misclassification of a worker as self-employed can result in HMRC penalties, requiring businesses to pay back-dated taxes and contributions. 

HMRC offers an online service to check whether a worker should be classed as employed or self-employed for tax purposes.

A “contractor” could be self-employed, have the employment status of a worker, or have the employment status of an employee if they work for a client and are employed by an agency.  

There is also a special scheme for self-employed contractors and sub-contractors working in the construction industry, called the “construction industry scheme (CIS).

There are special rules for businesses supplying workers, for example, an employment agency. 

If a worker is wrongly classified as a self-employed contractor or an employee, businesses may face: 

• Fines and penalties from HMRC. 

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

• Unexpected tax liabilities due to incorrect National Insurance and PAYE deductions. 

To mitigate these risks, businesses should ensure that contracts and working arrangements accurately reflect the individual’s true employment status and seek legal advice where necessary. 

The legal concept of a ‘worker’ offers flexibility for businesses whilst creating some legal protections. Although workers enjoy fewer rights than employees, they still benefit from (for example) minimum wage and paid leave protections. Businesses must carefully assess employment relationships to ensure proper classification and compliance with tax and employment laws. Misclassification can expose businesses to legal claims and financial penalties, making it crucial for organisations to adopt transparent and compliant worker arrangements.