DSP Publish Updated Code of Practice on Determining Employment Status

The Department of Social Protection (DSP) has published an updated Code of Practice on Determining Employment Status (the Code).

The Code aims to be of benefit to Employers, Employees, independent contractors and legal, financial and HR professionals. Investigators, decision-makers and adjudicators in the DSP, the Revenue Commissioners, the WRC, and the courts will also refer to the Code as part of their determinations.

The misclassification of a worker as being self-employed (sometimes referred to as bogus self-employment) has developed into a matter of concern for the Revenue and the DSP. Misclassifying workers can reduce contributions to the Social Insurance Fund and exclude the from full PRSI and employment rights protections.

The Code also helpfully notes that the Safety, Health, and Welfare at Work Act 2005 applies to all workers on a premises, regardless of their employment status.

Determining Employment Status

As there is no single, clear legal definition of the terms ‘employed’ or ‘self-employed’ in Irish or EU law, the contract between the parties and the reality behind the contract must be taken into consideration. While the terms of a contract might be quite clear in stating that a worker is engaged as a self-employed contractor, the courts and other statutory bodies will consider the nature of the relationship in determining the workers’ classification for the purpose of social insurance, income tax and employment rights.

Questions to Consider – The Five-step Framework

The Code sets out the five questions to consider when determining employment status, in line with 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:

a) does the contract involve the exchange of wage or other remuneration for work?

b) 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?

c) 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.

d) if these three requirements are met, all 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

e) 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.

What Does the Update to the Code mean for Employers?

The updated Code is a helpful document for Organisations that use self-employed contractors as part of their operations. Employers that engage workers on a contract for service basis now have a clear decision-making model to determine the correct employment status of such workers for tax purposes and deciding what employment rights might attach to the relationship. Relevant Organisations should therefore comprehensively review arrangements with all workers to determine their employment status for both taxation purposes and to establish what statutory employment rights apply.

The Code also notes that ‘false or bogus self-employment’ is a criminal offence and is subject to significant sanctions under the Social Welfare Acts. The Code advises that the extent to which a worker may or may not be happy with their contracted arrangement (in some cases being classified as self-employed may benefit the worker financially), is not a determining factor in deciding the correct employment status. The reality of the working arrangements is key, as assessed through use of the legal tests/factors set out above and as applied to the particular facts of each case.

As well as the Code, Organisations should also refer to the Revenue Guidelines for Determining Employment Status for Taxation Purposes. If a worker has been incorrectly classified as a self-employed contractor, the Organisation will be obliged to re-classify the worker as an Employee for tax purposes and file PAYE returns. The Revenue guidance also includes commentary on certain sectors including construction, part-time/casual/seasonal workers, workers working in domestic settings, couriers/transport, media, public sector, and platform work. Revenue may focus their compliance activity in this area on these sectors.