Code of Practice on Determining Employment Status

 

a)      Why employment status matters?

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 a ‘contract of service’ whereas a self-employed person is engaged on a ‘contract for services’. Employment status has implications for PRSI contributions and associated welfare benefits, tax treatment and employment rights. Many statutory employment rights are only available to employees, as opposed to those who are self-employed.

b)     Who makes the decision in relation to employment status?

There are a number of statutory bodies whose remit includes determining the employment status of a person.

1.      The Department of Social Protection, which determines employment status with a view to deciding the appropriate class of PRSI for an individual;

2.      The Office of the Revenue Commissioners (“Revenue”), where employment status determines tax treatment;

3.      The adjudication service of the WRC, which determines employment status as a preliminary issue when adjudicating on employment right disputes.

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

c)      Determining employment status

The Supreme Court judgement set out five questions that should be answered to establish whether a contract is one of service (employee) or for service (self-employed):

1.      Does the contract involve the exchange of wage or other remuneration for work?

2.      If so, is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer?

3.      If so, does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?

4.      If these three requirements are met, the decision maker must then determine whether the terms of the contract between the employer and worker is consistent with an employment contract or some other type of contract and consider whether the evidence points to the putative employee working for themselves or for the employer.

5.      It should be determined if there is any particular legislative regime under consideration that requires the court to adjust or supplement any of the foregoing.

In addition to the above, the question of whether a person is an employee or is self-employed for the purposes of Irish employment rights legislation depends on the definition contained in each instrument e.g., the Employment Equality Acts, health and safety legislation, the National Minimum Wage Act, the Unfair Dismissals Act etc. It is well established that every case must be considered on its own facts.

d)     Typical characteristics of employment and self-employment

The Code sets out some common indicators that may contribute to determining whether a person is an employee (supplies labour only) or self-employed (owns their own business):

Indicator	Employee	Self-Employed
Degree of control over how work is performed	Under the control of another person who directs them as to how, when and where the work is to be carried out.   Cannot subcontract the work.	Has 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.
Hours of work	Works set hours or a given number of hours per week or month.	Control the hours of work in fulfilling the job obligations.
Risk	Are not exposed to financial risk in carrying out the work.	Are exposed to financial risk by having to bear the cost of making good any faulty or substandard work carried out.
Materials and Equipment	Do not supply materials for the job. Do not provide equipment other than small tools of the trade.	Provide the materials for the job. Provide equipment and machinery necessary for the job, other than small tools of the trade or equipment. Have a fixed place of business where materials, equipment etc. can be stored.
Investment	Do not assume any responsibility for investment and management in the business.	Assume responsibility for the investment in and management of their work activities. Provide their own insurance cover e.g., public liability cover etc.
Exclusivity	Work for one person or for one business.	Can provide the same services to more than one person or business at the same time.
Profit	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.	Have the opportunity to profit from sound management in the scheduling and performance of engagements and tasks.
Payment	Receive a fixed hourly/weekly/monthly wage. Receive expense payments to cover subsistence and/or travel expenses. Are entitled to sick pay or extra pay for overtime.	Costs and agrees a price for the job.

e)      Consequences arising from the determination of employment status

An individual’s status as an employee or as a self-employed person affects:

1.      The way in which tax, USC and PRSI is payable to the Collector-General.

2.      Entitlement to social welfare benefits.

3.      Rights and entitlements under certain employment legislation.

4.      Public liability in respect of the work done.

f)       Special Circumstances

The Code sets out detailed information about the PRSI classification of people who own or control companies, agency workers, intermediary arrangements such as Personal Service Companies (PSC) and Managed Service Companies (MSC), and workers in the digital/gig economy.

Conclusion

The Code provides businesses with a clear understanding of employment status and should be read in conjunction with the Revenue Guidelines for Determining Employment Status for Taxation Purposes. 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.

Click here to read the Code.

Click here to read about the Revenue Guidelines.

For further information on this topic, please contact Triona Cody or any member of the Employment Team.

This document has been prepared by Kane Tuohy LLP on 27 November 2024 for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.