The updated Code aims to provide a clear understanding of employment status and assist where individuals are being categorised as being 'self-employed' when 'employee' status would be more appropriate.
Misclassification is noted as a concern in the Code which can impact on employment rights and contributions to the Social Insurance Fund however, the Code acknowledges genuine self-employment situations and does not seek to bring such cases into an employee category.
What are the updates?
The Code closely mirrors the previous code but now comments on some key developments in the labour market, namely:
- PRSI classification for employed persons who own or control 50% or more of the shareholding of the company, either directly or indirectly. A self-employed PRSI class applies (Class S).
- Agency workers, under social welfare legislation, are deemed to be insurably employed and the party who pays the wages is the employer for PRSI purposes.
- Personal Service Companies (PSC) and Managed Service Companies (MSC) are forms of intermediary structures used in lieu of a direct engagement between the worker providing services and the end-user of those services. These intermediary structures will be subject to the same factors/legal tests outlined in the Code when determining whether the worker is self-employed or an employee.
- The emergence of new forms of work (the so-called 'digital/gig/platform/crowd' economies) can pose a challenge in determining whether the relationship is that of an employee or self-employed. Many workers in the digital economy are genuinely operating in an independent and self-employed capacity. Others, however, may be deemed to be engaged as employees under a contract for the provision of services.
Employment v's Self-Employed Status
Whilst a contract may specify the engagement terms and, typically, who is responsible for the payment of income taxes, courts and statutory bodies will seek to analyse the reality behind the contract. The relationship between the worker providing the service and the business paying for that service will be assessed in order to determine whether an employment or self-employed status exists.
The Code provides a list of typical characteristics of an employee/self-employed individual and are similar to that provided in the previous Code, for example:
- Consideration of control, supply of materials, fixed hours/wage, ability to subcontract work
- Personal financial risk, business responsibility, opportunity to profit from performance
- Method of payment of taxes, registration for taxes, provision of insurance
Five key 'legal tests' (mutuality of obligation, substitution, the enterprise test, integration and control) will be considered when deciding if a worker is an employee or is self-employed and are discussed in the Code. All tests will be taken into account when making a determination and examined on the basis of the facts that pertain to that case.
As there are different statutory bodies responsible for making a determination on employment status, each will be responsible for making a determination in their own right. Each determination will be distinct from the other and the decision made by each body will not be binding on the other. The relevant statutory bodies are:
- Scope Section in 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.
Consequences for False Classification
A worker's status may affect their entitlement to social welfare benefits, right and entitlements under certain employment legislation and the way in which tax and PRSI is paid to the Collector-General.
A false self-employment classification may result in PAYE taxes not being remitted to Revenue and the loss of employer PRSI (currently up to 11.05%) to the Social Insurance Fund. Where a determination is made that a worker has been incorrectly classified as being self-employed, the employer will be required to pay the relevant PRSI contributions with penalties attaching. An employer may also suffer penalties for the non-operation of PAYE.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.