An employee is someone who works under an employment contract.
A person may be an employee in employment law but have a different status for tax purposes. Employers must work out each worker’s status in both employment law and tax law.
All employees are workers, but an employee has extra employment rights and responsibilities that don’t apply to workers who aren’t employees.
These rights include all of the rights workers have and:
- Statutory Sick Pay
- statutory maternity, paternity, adoption and shared parental leave and pay (workers only get pay, not leave)
- minimum notice periods if their employment will be ending, for example if an employer is dismissing them
- protection against unfair dismissal
- the right to request flexible working
- time off for emergencies
- Statutory Redundancy Pay
Some of these rights require a minimum length of continuous employment before an employee qualifies for them. An employment contract may state how long this qualification period is.
Working out employment status for an employee
Someone who works for a business is probably an employee if most of the following are true:
- they’re required to work regularly unless they’re on leave, for example holiday, sick leave or maternity leave
- they’re required to do a minimum number of hours and expect to be paid for time worked
- a manager or supervisor is responsible for their workload, saying when a piece of work should be finished and how it should be done
- they can’t send someone else to do their work
- the business deducts tax and National Insurance contributions from their wages
- they get paid holiday
- they’re entitled to contractual or Statutory Sick Pay, and maternity or paternity pay
- they can join the business’s pension scheme
- the business’s disciplinary and grievance procedures apply to them
- they work at the business’s premises or at an address specified by the business
- their contract sets out redundancy procedures
- the business provides the materials, tools and equipment for their work
- they only work for the business or if they do have another job, it’s completely different from their work for the business
- their contract, statement of terms and conditions or offer letter (which can be described as an ‘employment contract’) uses terms like ‘employer’ and ‘employee’
If most of these don’t apply, you should work out if the person is self-employed.
Individuals and their employers may have to pay unpaid tax and penalties, or lose entitlement to benefits, if their employment status is wrong.
Step 1 Decide what type of employee you need
and Check you can afford to take on employees
- Check how much the National Minimum Wage is
- Find out how much National Insurance you need to pay for your employees
- Check how much sick pay your employees are eligible for
- Check how much you need to pay towards your employee's pension
- Check how much Maternity Leave you need to pay your employees
- Check how much Paternity Leave you need to pay your employees
Step 2 Make your workplace safe and accessible for employees
- Prevent discrimination
- Make your workplace accessible for employees with disabilities or health conditions
- Keep employee information and data safe
- Fire safety
- Health and safety
You also need to make checks when you recruit and employ someone.
Step 3 Register as an employer and set up PAYE
You need to register with HMRC so you can pay tax and national insurance for your employees.
Step 4 Check your responsibilities around workplace pensions
Step 5 Get Employers' Liability insurance
Step 6 Recruit and employ staff