What is the difference between a worker who is an employee and one who is not?

An employee is an individual employed under a contract of employment. A worker who is not an employee works under a contract whereby the individual "undertakes to do or perform personally any work or services for another party to the contract whose status is not … that of a client or customer" (s.230(3) of the Employment Rights Act 1996). There is a body of case law on what distinguishes a worker from an employee. In general terms, for someone to be an employee, the three principle tests that must be met are:

  • personal service - the individual must be required to provide their services personally, rather than being able to send a substitute to carry out the work in their place;
  • mutuality of obligation - the employer must be obliged to provide the individual with work and the individual must be obliged to do that work in return for an agreed salary or wage, and on terms and conditions laid down by the employer; and
  • control - the employer must exercise a sufficient degree of control over the manner in which the individual carries out the work, consistent with an employer/employee relationship.

It follows that workers are not employees if they are free, without penalty, to accept or reject any offer of work made to them. Although the control element undoubtedly exists when a worker accepts an offer of casual work, the ability to reject such an offer at will, and without penalty, distinguishes such a worker from an employee.

Where none of the three tests are met, the individual is likely to be a self-employed independent contractor, running their own business, rather than a worker or employee.

Only employees are entitled to all statutory employment rights. For example, a worker cannot claim unfair dismissal or a statutory redundancy payment. Workers are entitled to some statutory rights, including those in relation to the national minimum wage, working hours and annual leave.