Worker, employee or self employed: employment rights

Q: How do the two systems interact in practice?

Illustration only. A courier is engaged through an app, invoices weekly and pays tax through self assessment. They must do the work personally and cannot send a substitute, and the business sets the rates. For tax, HMRC applies its own tests and might accept self employment. For rights, a tribunal could still decide that the courier is a limb (b) worker. If so, the business must pay at least the National Minimum Wage for working time and give paid holiday, and the courier may be entitled to a workplace pension. The courier would still not be entitled to unfair dismissal protection or redundancy pay, because those rights belong to employees. The reverse also happens. A contractor working through their own company may be taxed as employed under the off payroll working rules, yet have no contract of employment with the client and so no employee rights against it. Agency workers may have employee or worker rights, and the guidance stresses identifying who the employer actually is, which is usually the employment business unless an umbrella company is involved.

Employment law has three main categories, employee, worker and self employed, while tax law has only two, employed and self employed. A tribunal finding about employment rights does not settle someone’s tax status, and HMRC’s view for tax does not settle their rights. Workers get core rights such as the National Minimum Wage, paid holiday and a workplace pension from day one; employees also get rights such as protection from unfair dismissal and statutory redundancy pay, some only after a qualifying period.

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Why can tax status and employment status differ?

They are separate legal systems answering different questions. The government’s guidance on employment status and employment rights says plainly that tax has two categories, employed and self employed, whereas employment rights law also has a worker status in between. The systems are not interchangeable, so a decision for employment rights will not necessarily apply for tax. Universal Credit has its own framework, which generally follows the tax definitions.

Tax law also deems some people to be employed who have no contract of employment. The same guidance gives the examples of office holders such as company directors and, where conditions are met, workers supplied by agencies or working through personal service companies. Being taxed as employed under those rules does not by itself give the person employment rights. GOV.UK’s page on legal decisions explains that an employment tribunal or court makes the final decision on status for employment rights, while HMRC’s view for tax can be tested separately in the tax tribunal and courts.

How does the law define employees and workers?

Section 230 of the Employment Rights Act 1996 provides the definitions for most statutory rights in Great Britain:

an employee is an individual who works under a contract of employment, meaning a contract of service or apprenticeship, express or implied, oral or written (section 230(1) and (2));
a worker is anyone working under a contract of employment (often called limb (a)) or under any other contract to perform work or services personally for someone who is not a client or customer of a profession or business the individual carries on (limb (b)) (section 230(3)).

So every employee is also a worker, but not every worker is an employee. Self employment is not defined in the legislation; the government guidance describes it as carrying on a profession or business on your own account with clients or customers. Company directors are office holders, and GOV.UK says office holders are neither employees nor workers unless they also have an employment contract with the organisation.

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What tests decide which category applies?

The guidance says status is governed by the reality of the relationship, not the label in the contract. An employee needs personal service (with at most a limited right to send someone else), control by the employer, and mutuality of obligation, meaning the employer must provide work and the individual must do it. A limb (b) worker needs a contract, personal service (a limited or occasional right of substitution is not fatal) and a relationship that is not one of an independent business serving its own client or customer. Relevant factors include who sets the rate of pay, who the end customer pays, the financial risk the individual takes, whether they work for others and what equipment they provide.

Clauses designed to avoid employee or worker status, such as a statement that the business need not offer work, are disregarded if they do not reflect what happens in practice. Tax uses similar case law tests but applies them only to the employed or self employed question; see our page on the employment status tests.

What rights does each category have?

GOV.UK summarises the position as follows.

Right or protection	Employee	Worker	Self employed
National Minimum Wage	Yes	Yes	No
Statutory paid holiday and rest breaks	Yes	Yes	No
Protection from unlawful deductions from wages	Yes	Yes	No
48 hour average week (with opt out)	Yes	Yes	No
Protection from discrimination	Yes	Yes	In some cases
Whistleblowing protection	Yes	Yes	No
Workplace pension scheme	Yes	Yes	No
Statutory Sick Pay and statutory family pay	Yes	May be entitled	No
Statutory minimum notice	Yes	No	No
Protection from unfair dismissal	Yes	No	No
Right to request flexible working	Yes	No	No
Statutory redundancy pay	Yes	No	No
Health and safety protection	Yes	Yes	Yes

Almost all workers are entitled to 5.6 weeks of paid holiday a year, which is 28 days for someone working five days a week; irregular hours and part year workers build up leave as they work (see holiday pay for irregular hours). The self employed also have whatever rights their contract with the client gives them.

Which rights depend on length of service, and what is changing?

Some employee rights need a period of continuous employment. Under section 108 of the Employment Rights Act 1996, ordinary unfair dismissal protection currently needs two years, and under section 155 so does statutory redundancy pay. An employee with two years’ service can also ask for written reasons for dismissal.

The Employment Rights Act 2025 is being brought in stages. The government’s timeline, updated on 25 September 2026, records that:

from 6 April 2026 the Lower Earnings Limit and waiting period for Statutory Sick Pay were removed, and paternity leave and unpaid parental leave became day one rights;
from 1 October 2026 the time limit for bringing an employment tribunal claim increased from three to six months (for breach of contract claims in Scotland, from 9 November 2026);
from January 2027 the unfair dismissal qualifying period is due to fall to six months for dismissals from 1 January 2027, with the cap on compensatory awards removed.

The timeline notes that future dates remain subject to parliamentary processes and may change.

How do the two systems interact in practice?

Illustration only. A courier is engaged through an app, invoices weekly and pays tax through self assessment. They must do the work personally and cannot send a substitute, and the business sets the rates. For tax, HMRC applies its own tests and might accept self employment. For rights, a tribunal could still decide that the courier is a limb (b) worker. If so, the business must pay at least the National Minimum Wage for working time and give paid holiday, and the courier may be entitled to a workplace pension. The courier would still not be entitled to unfair dismissal protection or redundancy pay, because those rights belong to employees.

The reverse also happens. A contractor working through their own company may be taxed as employed under the off payroll working rules, yet have no contract of employment with the client and so no employee rights against it. Agency workers may have employee or worker rights, and the guidance stresses identifying who the employer actually is, which is usually the employment business unless an umbrella company is involved.

What mistakes do businesses make?

Relying on HMRC’s CEST tool for employment rights, when it only answers the tax question.
Assuming a contract that says self employed settles the matter, when tribunals look at how the work is actually done.
Treating anyone who is not an employee as having no rights, and missing holiday pay, minimum wage and pension auto enrolment for workers.
Assuming that deducting tax through payroll makes someone an employee for rights, when GOV.UK lists tax deductions as a sign of worker status too.
Forgetting that a director with a service contract can be an employee as well as an office holder.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.