Have you ever casually called someone a “freelancer,” only to wonder later if they should be getting holiday pay or minimum wage protections? You’re not alone—and the consequences of getting it wrong can be severe.
At Hello Chief, we see this all the time. Businesses often misunderstand or misclassify the people working for them. The truth? It’s not about the label on the contract. It’s about the reality of the working relationship.
What’s the Difference Between an Employee, Worker and Self-Employed?
In UK employment law, individuals providing services typically fall into one of three categories:
• Employee – These individuals have a contract of employment and are entitled to the full suite of employment rights: sick pay, holiday pay, unfair dismissal protection, maternity/paternity leave, and more. They work under your control and direction.
• Worker – Think of this as “employee-lite.” Workers are entitled to some key protections, including minimum wage, paid holiday, and whistleblowing protection, but don’t enjoy the full range of employee rights.
• Self-employed – Independent contractors who are (supposedly) in business for themselves. They take on their own risk, have control over how they work, and typically provide services to multiple clients.
But here’s the catch: you don’t get to choose someone’s employment status just because it suits your business. It’s determined by the courts based on how things work in practice, not just what’s written in the contract.
How Employment Status is Determined
There are three key factors that help determine status:
- Control – Do you decide how, when, and where the work is done?
- Mutuality of Obligation – Are you required to offer work, and are they required to accept it?
- Personal Service – Must they do the work themselves, or can they send someone in their place?
If all three are present, you’ve likely got an employee. Some? Possibly a worker. None? Maybe self-employed—if the reality reflects that.
Many “self-employed” agreements are riddled with contradictions: controlling hours, offering sick pay, or requiring personal service. All of which scream employment in the eyes of a tribunal.
The Risks of Getting It Wrong
Misclassification isn’t just a paperwork error. It can open the floodgates to legal claims and financial penalties:
• Unfair Dismissal – Only employees can be dismissed. But if someone classified as self-employed is actually an employee in disguise, that’s a legal claim waiting to happen.
• Holiday Pay Backpay – If someone was a worker or employee all along, you might owe them years of unpaid holiday pay.
• Minimum Wage Breaches – Workers and employees are entitled to National Minimum Wage. Get it wrong and you could be publicly named and shamed—or worse.
Case in Point: Uber
Uber called its drivers self-employed. The courts disagreed. Despite the app-based flexibility, Uber controlled fares, routes, and how drivers worked. The verdict? Worker status. Uber had to pay up, big time.
This wasn’t just a gig economy issue. It was a wake-up call for every UK business: Clever contracts won’t protect you from reality.
What Should Businesses Do Now?
Until the government simplifies employment law (there’s talk of merging employee and worker status into a two-tier system), the responsibility to get it right is on you. Here’s what we recommend:
• Audit your contracts – Do they reflect the true working relationship?
• Observe day-to-day operations – Is someone truly independent, or are they integrated into your team?
• Avoid DIY classification – Tribunals are savvy. They look beyond the contract.
• Get expert HR advice – That’s what we’re here for.
Need a Hand?
At Hello Chief, we’ve helped countless businesses clean up murky employment arrangements—before HMRC or a former contractor does it for them.
Not 100% sure your workforce structure is watertight? Let’s talk. It’s better to fix it now than defend it later.
📞 Contact Hello Chief today — and get it right the first time.
