Code of Practice on Determining Employment Status

The Code of Practice on Determining Employment Status gives clear information about employment status taking into consideration labour market practices and developments, legislation, and case law.

The code aims to be of benefit to employers, employees, independent contractors and legal, financial and HR professionals. It is also aimed at investigators, decision-makers and adjudicators in the Department of Social Protection, the Office of the Revenue Commissioners, the WRC, their respective appeals bodies, and the courts.

In Ireland, there is a wide range of ways to work and to operate a business. Specific legislative protections for workers apply to each type, including self-employment, full-time employment, part-time employment, temporary agency work and fixed-term contracts.

It is important to ensure that workers are correctly classified in a way that matches the reality of the relationship between the worker and the business. The choice of business model should not serve to exclude any worker from their proper entitlements.

The misclassification of a worker as being self-employed when their terms and conditions mean that they are, in reality, employees, is a matter of concern. Misclassification reduces contributions to the Social Insurance Fund and excludes workers from full Pay Related Social Insurance (PRSI) and employment rights protections.

It is also important to note that the Safety, Health and Welfare at Work Act 2005 applies to all workers on a premises, regardless of their employment status. Employers and employees all have duties under the Act. The Health and Safety Authority (HSA) is the statutory body charged with ensuring compliance in this area.

In most cases it will be clear whether a worker is employed or self-employed.

However, as there is no single, clear legal definition of the terms ‘employed’ or ‘self-employed’ in Irish or EU law in order to determine a person’s employment status, both the written or oral contract and the reality behind the contract must be taken into consideration. Although the intention of the parties and any written agreement is given due consideration, they do not on their own determine the employment status for the purpose of social insurance classification, income tax or employment rights.

Accordingly, while the terms of a contract might be quite clear in stating that a worker is engaged under a contract for service, that is, as a self-employed contractor, courts and statutory bodies must consider the nature of the relationship in determining the workers’ classification for the purpose of social insurance, income tax and employment rights. Taking the full facts into account these authorities may in fact determine that a worker is engaged in a contract of service – that is, as an employee.

‘Employment status’ for the purposes of the Code, refers to whether a person is determined to be an ‘employee’ or to be ‘self-employed’. An employee is categorised as being engaged on the basis of a ‘contract of service’ whereas a self-employed person is engaged on a ‘contract for services’.

Employment status has implications for:

• Pay Related Social Insurance (PRSI) contributions and associated social welfare benefits
• tax treatment
• employment rights - many statutory employment rights are only available to employees, as opposed to those who are self-employed

There are a number of statutory bodies whose remit includes determining the employment status of a person. Each of these bodies make their determinations independently of each other in respect of the particular functions for which they are responsible.

These bodies are:

• the Department of Social Protection, which determines employment status with a view to deciding the appropriate class of PRSI for an individual
• the Office of the Revenue Commissioners, where employment status determines tax treatment
• the adjudication service of the WRC, which determines employment status as a preliminary issue when adjudicating on employment rights complaints

Decisions of the Department of Social Protection or the WRC or Revenue are not binding on each other.

The questions to be considered, when determining employment status, have been updated in light of the Supreme Court’s landmark judgment delivered in the Karshan case.

The five-step framework included in that judgment provides a clear decision-making model to determine the employment status of each worker taking account of their facts and circumstances.

The question of whether a worker is an employee can be resolved by firstly having regard to the following three ‘filter’ questions:

• does the contract involve the exchange of wage or other remuneration for work?
• if so, is the agreement one where the worker is agreeing to provide their own services, and not those of a third party, to the business?
• if so, does the business exercise sufficient control over the worker to render the agreement one that is capable of being an employment agreement?

If any one of these questions are answered negatively it means that there can be no contract of employment.

• if these three requirements are met, all of the circumstances of the arrangement/agreement/contract must be considered. In other words, whether the terms of the arrangement/agreement/contract between the business and the worker, interpreted in the light of the practical/real conditions of engagement (the “factual matrix”) are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the worker working for themselves or for the business/employer
• finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires a particular approach to be taken, e.g., a person might be an employee for social insurance purposes but self-employed for employment law or tax purposes

All the relevant circumstances established by applying the framework as a whole are to be taken into account in determining the employment status of a worker in any given case.

The five-step framework must be considered in its entirety and applied to the facts of each case. However, when considering step 4 of the framework, while all of the following factors may not apply, a worker could potentially be considered to be an employee for the purposes of step 4 where they:

• are under the control of another person who directs them as to how, when and where the work is to be carried out
• supply labour only
• receive a fixed hourly/weekly/monthly wage
• cannot subcontract the work
• do not supply materials for the job
• do not provide equipment other than the small tools of the trade
• are not exposed to personal financial risk in carrying out the work
• do not assume any responsibility for investment and management in the business
• do not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements
• work set hours or a given number of hours per week or month
• work for one person or for one business
• receive expense payments to cover subsistence and/or travel expenses
• are entitled to sick pay or extra pay for overtime

Important caveats:

• if the work can be subcontracted and ‘paid on’ by the person subcontracting the work, it is possible the employer/employee relationship may simply be transferred on
• it is possible that the provision of tools or equipment will not have a significant bearing on the determination of employment status, having regard to all the circumstances of a particular case
• an individual could have considerable freedom and independence in carrying out work and still be an employee
• an individual with specialist knowledge might not be directed as to how the work is to be carried out and still be an employee
• an individual who is paid by commission, by share, or by piecework, or in some other atypical fashion may still be regarded as an employee
• some individuals work for more than one employer at the same period of time, and may still be regarded as an employee
• some individuals may also be self-employed in respect of other work being performed by him or her, and may still be regarded as an employee of another business
• some individuals work remotely or otherwise not on the business premises and are still regarded as employees
• employees may work in a range of ways, including, but not limited to, part-time work, temporary work, seasonal work or occasional work
• some employees are paid by reference to contracted hours, while others may be paid by reference to the amount of work actually done
• the hours of work or remuneration of an employee may be uncertain

The five-step framework must be considered in its entirety and applied to the facts of each case. However, when considering step 4 of the framework, while all of the following factors may not apply, a worker could potentially be considered to be self-employed for the purposes of step 4 where they:

• own their own business
• are exposed to financial risk by having to bear the cost of making good any faulty or substandard work carried out
• assume responsibility for the investment in and management of their work activities
• have the opportunity to profit from sound management in the scheduling and performance of engagements and tasks
• have control over what is done, how it is done, when and where it is done and whether they, or another person, does the work
• are free to hire other people, on terms they specify, to do the work which has been agreed to be undertaken
• can provide the same services to more than one person or business at the same time
• provide the materials for the job
• provide equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account
• have a fixed place of business where materials, equipment etc. can be stored
• costs and agrees a price for the job
• control the hours of work in fulfilling the job obligations

Important caveats:

• the fact that an individual has registered for Income Tax or VAT under the principles of self-assessment does not automatically mean that he or she is self-employed
• a person who is a self-employed contractor in one job is not necessarily self-employed in another job - it is also possible to be employed and self-employed at the same time in different jobs
• in the construction sector, for health and safety reasons, all individuals, regardless of employment status, are under the direction of the site foreman/overseer

Detailed information about: people who own or control companies, agency workers, use of intermediary arrangements, Personal Service Companies (PSC), Managed Service Companies (MSC), and workers in the digital/gig economy can be found in Section 8 of the Code.

Consequences arising from the determination of employment status

A worker’s status as an employee or as a self-employed person affects:

• the way in which tax, USC and PRSI is payable to the Collector-General
• as an employee, the worker will have income tax, USC and PRSI deducted from their income through their employer’s payroll system
• a self-employed worker is obliged under self-assessment to pay preliminary tax and file their own income tax returns using the Revenue Online System (ROS)

Entitlement to social welfare benefits:

Self-employed persons are entitled to most of the same benefits and entitlements including pensions, disability, caring and maternity/paternity and parental benefits available to employed persons. There are however some exceptions most notably self-employed people are not eligible to claim Illness Benefit. Also, separate Jobseeker Benefit arrangements apply.

Rights and entitlements under certain employment legislation

An employee has rights in respect of working time, holidays, maternity/parental leave, protection from unfair dismissal etc. A self-employed person does not have these rights and protections. (It should be noted that a self-employed person is entitled to avail of the protections provided by the Employment Equality Acts once s/he has a contract to execute any work or service in a personal capacity for the other person).

• Public liability in respect of the work done

Generally, an employee will be covered by their employer’s public liability insurance, whereas a self-employed person is expected to hold their own insurance.

Where there are difficulties in deciding the appropriate status of an individual or groups of individuals, the following organisations can provide help:

For matters relating to decisions on employment status for PRSI purposes:

For matters relating to tax:

Contact Revenue or through MyEnquiries in ROS or MyAccount.

For matters relating to employment and equality rights:

Workplace Relations Commission,

Information and Customer Service,

O’Brien Road,

Carlow,

R93 E920.

Phone number: 059 9178990 Lo-call: 0818 80 80 90

Website: www.workplacerelations.ie

For matters related to Safety, Health and Welfare at Work:

It is also important to note that the Safety, Health and Welfare at Work Act 2005 applies to all workers on a premises, regardless of their employment status. Employers and employees all have duties under the Act. The Health and Safety Authority (HSA) is the statutory body charged with ensuring compliance in this area.

Please see Health and Safety Authority (HSA) for more information and contact details for the HSA.