Establishing employment status
A key distinction between an employee and an independent contractor is the level of control within the contract itself. Therefore the legal question is whether this is a 'contract of service', or a 'contract for services'. A contractor has more autonomy than an employee, can work elsewhere, and has responsibilities for his/her tax and national insurance. However, with the huge variety of modern working contracts it is increasingly difficult to establish the status of a worker. There are other distinctions to be made beyond the level of control, such as methods of payment, the provision of equipment and the intention of the parties when forming a judgement as to whether or not the individual is an employee.
Be aware of the introduction of the "worker" in more recent legislation, mostly emanating from the EU. This term is present in relation to public interest disclosures (Whistleblowing) and the Working Time Regulations (WTR) 1998. The worker is something of a hybrid between employee and contractor, having the rights of each of those categories in some respects. For example, you may employ a long term agency IT consultant who whilst not your employee, is still your worker, and therefore entitled to holidays, breaks, etc as granted under the WTR 1998.
It is important that if your business hires any “agency workers” that their rights under The Agency Workers Regulations 2010 are acknowledged, particularly with regards observance of the 12 week qualifying period where agency workers are entitled to equal treatment in relation to "basic working, family rights, and employment conditions" including pay, working time and holiday.