Under the current law, there are three types of employment status:
employee, entitled to employment rights such as the right not to be unfairly dismissed, holiday pay, sick pay, parental leave and redundancy protections.
worker, with some employment rights, including holiday, rest breaks and the minimum wage, but less protection than employees overall.
self-employed, with only basic employment rights, such as health and safety protections and the right not to be discriminated against.
Employment status is not a label you attach depending on which rights you want to provide. It is inherent in the job role. Several factors affect an individual’s status, including bargaining power and how much freedom or control the individual has.
In their plan to Make Work Pay, Labour committed to combine ‘employee’ and ‘worker’ into one category, creating a two-status system. (The wording of the plan suggests these categories will be defined as ‘self-employed’ and ‘worker’. However, we will refer to ‘self-employed’ and ‘employed’ throughout this article for clarity, because the rights of the newly defined ‘workers’ will be in-line with current ‘employees’.)
More people will gain full employment rights, which is likely to increase costs for employers, and could lead to an increase in tribunal claims. But a simpler, two-tier system will offer more certainty than the current complex system, reducing the risk of mistakes that lead to tribunals.
When will this happen?
The Employment Rights Act 2025 didn’t contain any mention of employment status.
The government has confirmed that it is still committed to the changes, but that it “sees consulting on a simpler employment status framework as a longer-term goal.” There is no indication of when this will be (although presumably it will be before August 2029, the latest the government could call a general election.)
Preparing for the change
The consultation process should give us more idea of what the new structure will look like, and how employers can prepare. There may be a few approaches – for example, will workers automatically become employees (with equivalent rights), or will they be granted additional obligations and restrictions in line with employees? Will there be room to negotiate new contracts, or adjust roles to become self-employed instead?
As this move is still some way away, employers have more pressing changes to address.
It is worth remembering that once the two categories are combined, workers will gain the right to redundancy pay and the right to collective consultation in some circumstances. If you plan to restructure or outsource roles, it would be sensible to do it before the change.
Will employers outsource everything to contractors?
One issue with the current system is that some employers try to avoid offering rights by mis-labelling employment status. We have already seen businesses try to get around new tipping laws by suggesting the use of ‘freelancers.’ Some may try to pass off employees as ‘self-employed’ to avoid the cost of giving them full rights. But if workers don't genuinely fit the definition of self-employment, employers could face costly tribunal claims and be ordered to pay backpay. With a simpler system, it will be harder for bad employers to hide behind the confusing system.
Other employers may try to move towards a genuinely self-employed workforce, but this isn’t feasible for all businesses. For example, it is unlikely a hospitality business could allow staff to choose when they work, whether to send a substitute, or impose their own ways of working.
Even businesses that can run with a genuinely self-employed workforce may not find it any cheaper. It’s likely the employer would have to sacrifice some control over the role, yet contractors’ fees may be higher than an equivalent employee’s wages because of the costs they take on and the rights they give up. On top of this, contractors are entitled to certain rights, including freedom from discrimination. Under government proposals, they may gain further rights including the right to a written contract, and greater protections against blacklisting and late payment, as well as being included in pay-gap reporting. These were not included in the Employment Rights Act, but could be implemented in later reforms.
It will be up to each employer to decide whether genuinely outsourcing all work is possible, and whether they will be any better off.
What next?
The Government intends to consult on creating a single status of worker, and how it will be implemented. Keep up to date on the latest consultations here.
When recruiting, it may be simpler to hire employees or self-employed staff where possible. If you must hire workers, remember that the arrangements may change in the future and consider how you will go about this when the time comes. Bear in mind that, once workers gain redundancy rights, a restructure will be more costly.
Read more about the key changes in the Employment Rights Bill, and how employers can prepare.
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