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Chapter 4

The importance of the distinction

The type of working relationship has a number of consequences:

 Employees receive statutory protection (e.g. unfair dismissal/redundancy)

 There are implied terms in a contract of employment (e.g. duty of obedience)

 An employer is vicariously liable for the acts of employees when they act in the
course of the employer’s business. The employer is not liable for the acts of
independent contractors.

 On the insolvency of the employer, an employee is a preferential creditor,
whereas someone who is self-employed ranks as an ordinary unsecured
creditor

 Employees receive their pay net of income tax and national insurance under the
PAYE system. Independent contractors are taxed under the trading income
provisions

 Certain state benefits (e.g. statutory sick pay) are only available to employees.

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