The updated Code of Practice on Determining Employment Status (the “Code”) has been published, after a review conducted by an interdepartmental group comprising the Department of Social Protection, the office of the Revenue Commissioners and the Workplace Relations Commission (“WRC”) to reflect the 2023 judgment of the Supreme Court in The Revenue Commissioners v Karshan (Midlands) LTD t/a Domino’s Pizza. For a detailed analysis of the case, see our briefing here.

The Code’s stated aim is to assist employers, employees, independent contractors and legal, financial and HR professionals, along with decision makers in the interdepartmental groups, in determining the employment status of individuals, taking into account current labour market practices and developments in legislation and caselaw. The Code will help to ensure that workers are correctly classified in a way that matches the reality of the relationship between the worker and the business.

The Code acknowledges that there is no single, clear definition of the terms ‘employed’ and ‘self-employed’ in Irish or EU law. Therefore, decision makers are required to look at any formal contracts that may exist, consider how the work is actually carried out and assess the relationship between the worker providing the service and the business paying for that service in line with the five-step framework set out in the Karshan judgment.  The Code is designed to help with this assessment.

This Code is in addition to the Revenue Guidelines for Determining Employment Status for Taxation Purposes which was published by the Revenue Commissioners earlier this year. For a detailed analysis of that guidance, see our briefing here.

The questions to be considered

The five-step framework set out in the Karshan judgment provides a clear decision-making model to determine the employment status of each worker taking account of their facts and circumstances. The Code follows this framework and states that the question of whether a worker is an employee can be resolved by firstly having regard to the following three ‘filter’ questions (whereby if any one of these questions is answered negatively, no contract of employment can exist):

• 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 those three requirements are met, the decision maker must go onto consider:

• All of the circumstances of the arrangement/agreement/contract. In other words, whether the terms of the arrangement/agreement/contract between the business and the worker, interpreted in 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.
• 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.

The Code confirms that all the relevant considerations 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 Code goes on to give additional guidance on each of the five questions contained in the framework.

Exchange of wage or other remuneration for work

The first question a decision maker must consider is whether the parties have entered into a contract at all (whether expressed or implied). For a contract of employment to exist, there has to be an offer of work, acceptance of that offer, and resulting payment or “consideration”.

Provided there is payment by a business to a worker for a service directly or indirectly for the provision of the worker’s labour, whether agreed in writing or not, and whether the work is carried out on a once off basis or on a continuous basis or anything in between, there is a contract which is capable of being an employment contract.

Personal Service

This question considers whether and to what extent the worker has agreed to provide their services to the business personally, i.e. the ‘substitution test’. Substitution concerns a worker’s right to appoint someone else as a substitute if he or she is unable, unwilling or never intended, to personally undertake to do all or part of the work. The Code states that, in applying this test, the Department of Social Protection, the Revenue Commissioners and the WRC will always ask the following question: who does the work when the worker is absent and who selects, arranges and remunerates the replacement worker? Even where the worker arranges the substitute, an important factor in assessing the level of substitution available is whether, and if so to what extent, the person/business who is offering the work has a say in who the worker hires. Other important factors to consider are whether and to what extent the substitute is controlled and/or paid directly by the business/person offering the work or the worker. The more restrictions imposed on the freedom of a worker to appoint a substitute, the more indicative the arrangement is that of a contract of employment, e.g. where prior approval of substitutes is required, payment of substitutes is made directly by the business rather the person they are providing cover for, or where substitutes are from a pool of preapproved workers.

Control

This question considers the ability, authority, or right of a business to exercise control over a worker concerning what work should be done, and how, when and where it should be done. When assessing the degree of control held by the business and the degree of independence held by the worker, it should be borne in mind that the right of the business to exercise control is more relevant than whether they actually exercise this right.

The Code states that, when considering the issue of “control”, a decision maker may also have regard to the issues of “enterprise” and “integration” as follows:

• Enterprise: The extent to which the worker carries risk and their ability to make financial gain through their own ingenuity/efficiency.
• Integration: The extent to which a worker is an integral part of the operations of the business/person engaging their services, as opposed to carrying out work that, although done for the business, is peripheral or accessory to it.

All of the circumstances of the engagement

Only where the first three “filter” questions are answered affirmatively do decision makers need to consider the entire factual matrix of the engagement. The question to be considered is whether the facts indicate that the worker is providing services on his or her own account, or whether the facts indicate that the worker is providing the services on behalf of the business.

The legislative context

Consideration also needs to be given to any legislation that requires an adjustment or supplement to any of the foregoing questions in the particular circumstances of the relationship being considered. The Code notes, in the context of the WRC determining employment status under the relevant employment legislation, that the definitions of ‘contract of employment, ‘employee’ and ‘employer’ differ from one employment enactment to another. As a result, each case lodged with the WRC is different and is decided on its own facts by an Adjudication Officer.

Typical characteristics of an employee

The Code also outlines the following typical characteristics of an employee but notes that all the factors may not apply to every case:

• 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.

The Code also contains a number of “caveats” to the above criteria, namely:

• 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.

Typical characteristics of self-employment

The Code also outlines the following typical characteristics of self-employment but notes that all the factors may not apply to every case:

• 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;
• Provide their own insurance cover e.g., public liability cover, etc;
• Control the hours of work in fulfilling the job obligations.

The Code also contains a number of “caveats” to the above criteria, namely:

• 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.

Special circumstances and developments in the labour market

Helpfully, the Code considers the special considerations that may apply when dealing with the following scenarios:

• PRSI classification for people who own or control companies – employed persons who control, either directly or indirectly, 50% or more of the shareholding of the company that they work for cannot normally be an employee of that company for PRSI purposes under social welfare legislation. They must be classified as self-employed and are liable to pay PRSI at Class S;
• Agency workers – who the employer is will depend on the relevant employment, social welfare or tax legislation;
• Use of intermediary arrangements, including personal services companies and managed service companies – notwithstanding the use of intermediary structures, the same five-step framework will be used to determine the employment status of these workers; and
• Workers in the digital/gig economy – notwithstanding the method of engagement of these workers, the same five-step framework will be used to determine the employment status of these workers.

False/Bogus self-employment and PRSI arrears

The Code reiterates that false/bogus self-employment is a criminal offence giving rise to a loss of PRSI and taxation income and subject to significant sanctions under the Social Welfare Acts. Where a determination by the Department of Social Protection is made that a worker has been incorrectly classified as being self-employed for PRSI purposes, the employer will be required to pay the relevant PRSI contributions for the employee(s) for the full period in question and may be subject to a range of penalties under the Social Welfare Consolidation Act 2005. There is no limitation on the period of retrospection.

Health and safety matters

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

If you require further information on this topic, please contact a member of the Employment or Tax Groups or your usual Arthur Cox contact.

The content of this briefing is provided for information purposes only and is not legal or other advice.