The updated Code of Practice on Determining Employment Status

The Minister for Social Protection, Heather Humphreys, published an updated Code of Practice on Determining Employment Status (“The Code”) on 21^st July, 2021.

Background

The Code was first established in 2001 due to growing concerns around workers categorised as ‘self-employed’ when ‘employee’ status may be more appropriate given the nature of their work and compensation for same. Due to fresh concerns relating to new forms of work, such as the so-called “gig economy” the code has been amended.

The purpose of the code is to provide clear understanding of employment status, considering current labour market practices and developments in legislation and caselaw. In the introduction to the code, the Office of the Revenue Commissioners (“Revenue”) state that it is meant to be a ‘living document’ which shall be amended as needed, to reflect future changes in the labour market, legislation and caselaw.

There is no single definition of the terms ‘employed’ or ‘self-employed’ in Irish or EU law. Therefore, to determine a worker’s status, both the employment contract and the reality behind the contract must be taken into consideration. The incorrect classification of employment status can have significant consequences for employers and employees, including liability for arrears of PAYE/PRSI. Also, many statutory employment rights are only available to employees, as opposed to those who are self-employed.

Changes within the updated Code

The Code will assist employers in determining the status of a potential employee as it lists several factors and characteristics that indicate if a worker is self-employed or an employee.

Characteristics of an ‘employee’ listed in the Code include but are not limited to:

• Controlled by another person who directs them as to how, when and where the work is to be carried out.
• Supplies labour only.
• Receives a fixed hourly/weekly/monthly wage.
• Cannot subcontract the work.
• Does not supply materials for the job.

Characteristics of  a ‘self-employed’ worker listed in the Code include but are not limited to:

• Owns their own business.
• Is exposed to financial risk by having to bear the cost of faulty or substandard work carried out under the contract.
• Assumes responsibility for the investment and management of the enterprise.
• Can profit from proper management in the scheduling and performance of engagements and tasks.
• Has control over what is done, how it is done, when and where it is done and whether he/she does it personally.

There are three statutory bodies that make decisions on the employment status of a person for the purpose of PRSI, tax and employment rights. These include Scope Section in the Department of Social Protection, Revenue and The Adjudication Services Division of the Workplace Relations Commission (the “WRC”).

Determining employment status

The Code sets out five key factors or ‘legal tests’ in making a decision on employment status. These factors are:

• mutuality of obligation,
• substitution,
• the enterprise test,
• integration,
• control.

Recent changes in work practices have blurred the distinction between employed and self-employed status and have created uncertainty around whether an individual should be considered an employee or self-employed. The classification of employment status can have a serious knock-on effect for employees and self-employed workers, from a tax and employment rights point of view if made incorrectly.

About the Author: Emer Murphy, Senior Associate on the Employment Team