Employment status ― why it matters

By Tolley and written by Anne Redston
Employment status ― why it matters

The following Employment Tax guidance note by Tolley and written by Anne Redston provides comprehensive and up to date tax information covering:

  • Employment status ― why it matters
  • Gross or net
  • Rates and structure of NIC
  • Expenses
  • Statutory payments
  • Leave for employees
  • Employment law rights and other risks
  • The ‘worker’ category
  • The Taylor Review and afterwards
  • Overall position
  • Conclusion

This note sets out the main differences between employment and self-employment. It discusses the timing of payment, national insurance contributions (NIC), expenses, statutory payments, leave entitlements and (briefly) employment rights. It does not cover those who work through agencies (for which, see the Agency workers guidance note).

From the individual’s perspective, employment status matters because it determines the tax and NIC on his earnings, as well as his statutory rights. From the engager’s perspective, miscategorisation may trigger PAYE and NIC assessments, as well as claims for employment rights and / or statutory payments. Getting employment status wrong can be very expensive.

Remember that this note and the other notes on employment status are only a summary, and do not cover all situations. You may need to take further advice. For the position of those working through personal service companies and the IR35 rules, see the Personal service companies ― overview guidance note.

In July 2017, the Taylor Review  recommended several significant changes to the current legal position. In February 2018, as part of its response to the Taylor Review, the Government published a consultation document on options for reforming and improving the employment status tests for both employment rights and tax purposes. In December 2018, this was followed by the ‘Good Work Plan’. The main points of the Taylor Review, the 2018 Consultation and the Good Work Plan, which are relevant to this guidance note, are summarised at the end of this note.

Good work: the Taylor Review of Modern Working Practices, 11 July 2017 ; Employment Status Consultation, 7 February 2018 ; The Good Work Plan, 17 December 2018 
Gross or net

The first difference between employment and self-employment is that employees have income tax and NIC deducted from their general earnings before receipt, under PAYE, whereas the

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