Employment status: guidance for managers

Businesses use the services of people in different ways and under different terms. Within your own team, you may have some employees, for example, but you may also have team members who work as contractors, consultants, casuals, agency workers, zero-hours contractors, temps or interns.

Different types of staff have different types of employment rights. For example, while employees have legal rights to such things as statutory sick pay (SSP) or redundancy entitlements, other types of workers do not.

Although it can be easy to slip into the habit of treating everyone in the same way, it’s vital you make a clear distinction in how you treat different team members depending on their employment status. If lines become blurred, non-employees may inadvertently attract employment rights, which can prove expensive for the organisation if they later pursue an employment claim.

As a manager, it is important to understand the different kinds of employment status or types of contract or arrangements under which your team members are engaged so that you can manage your team and their expectations. It will also help you support your organisation to function effectively and avoid any claims against it.

What are the main types of status?

Three main types of employments status

There are three main types of employments status: employees, self-employed and workers.

Employees: work according to terms stipulated in a contract of employment or contract of service, which details their hours, salary, holidays etc. Employees have the greatest number of employment rights to protect them in the workplace. This includes protection from unfair dismissal, redundancy pay, guaranteed pay and the right to notice and time off (see box).

Self-employed: people who work on a self-employed basis run their own business and are, effectively, their own boss, albeit they are the only person in that business. Consultants, project managers and freelancers have self-employed status. They usually work under a contract for services but have very limited employment rights.

Workers: also known as ‘dependent contractors’. People who work under a contract and can delegate work to others. This category of worker covers employees as well as certain self-employed individuals. Workers have fewer employment rights than employees but are likely to have more employment rights than a self-employed person. These include protected income, breaks at work on a daily and weekly basis and paid holidays. They also have the right to be accompanied at a grievance or disciplinary hearing and not to suffer a detriment for exercising that right.

Why employment status matters

Imagine this scenario. Oliver is on your team. He is a casual worker with no set hours of work per week and he has been working for your company for several years. You consider Oliver to be self-employed.

One day due to business reasons you are told to reduce the headcount in your team, and you need to tell Oliver that you no longer require his services. When you deliver the news, Oliver tells you he feels he has been unfairly dismissed. He believes he is an employee and takes the matter to an Employment Tribunal (ET).

The ET will scrutinise Oliver’s contract and other HR issues, for example, how he was paid (if it was via payroll, he’ll be considered an employee, if he sends an invoice, he’ll be considered as self-employed).

But it will also explore yours and the company’s working relationship with him. It will consider whether Oliver has worked solely for the company on a regular basis and whether Oliver was treated as an employee, e.g., by attending departmental meetings. Such factors could lead the ET to consider that Oliver was effectively an employee rather than a self-employed individual or worker — a decision that could cost the company dearly in terms of compensation.

Relevant manager behaviours

Demonstrating knowledge about the different types of employment status and being clear about what entitlements each category brings fits with the desired behaviours of Providing knowledge, clarity and guidance. Exercise 4 offers a route to developing these behaviours.

Risks of vague employment status

If your team has used the services of someone for a period, that individual may assume they have similar entitlements to an employee and make a claim when the need arises, for example, for redundancy pay, holiday, sick pay or flexible working (amongst others).

Even though they may know that they were originally engaged by the business in a different way to employees, they may try to establish they are now considered as an employee in order to claim such rights.

If there is a question mark over their employment status or errors within their contract of employment, the business could face consequences. It may have to pay more tax, for example, or if the individual successfully pursues a claim against the company at an employment tribunal, it could have to pay them considerable compensation.

What can you do as a manager?

Three helpful checks to make

While it is not usually down to managers to draft contracts, it is helpful for you to understand the contracts in place and ensure they sets out clear terms for everyone in your team. Here are some helpful checks you can make:

Check everyone on your team has a correct contract of service. Sometimes this is known as a 'written statement of particulars', it covers basic employment terms and conditions.
- Employees should get a contract on their first day of employment.
- Contracts for self-employed team members should clearly set out the work/services they will provide. But it will also make it clear that there is no guarantee of regular work and that they operate autonomously, invoicing for all work.
- Workers should have a contract for services type document. Agency workers are unique because, while they work for your company, there is no contract between the company and them since the contractual relationship is between your organisation and the agency supplying the worker. Managers should be aware that Agency Workers have certain rights once they have been working in an organisation for 12 weeks.
Manage staff and their expectations according to their employment status. You should consider whether it is appropriate for workers or contractors to attend staff meetings – generally they should not be invited as a member of the staff meeting but you may require them to attend a relevant briefing or a particular agenda item. You would not be expected to provide training for a worker or contractor but there may be for example particular equipment or machinery where you provide basic training to enable them to use the equipment effectively.
Ask your HR department about training or updates about employment status to avoid mismanaging a self-employed/worker member of your team. If you manage any managers, ensure they are also trained — you are the ones dealing with staff on a daily basis, so you need to know.

Relevant manager behaviour

Having rules that are clear, understood and applied across your team fits with the desired behaviours of Being open, fair and consistent. These behaviours will help you demonstrate an ordered and responsible management approach. Exercise 1 offers a route to developing these behaviours.