Following the 2023 judgement of the Supreme Court in The Revenue Commissioners v Karshan (midlands) Ltd/ T/A Donimo’s Pizza [2023] IESC 24 the Government’s “Code of Practice on Determining Employment Status” (hereafter “the Code”) has been reviewed and updated by an interdepartmental group comprising of the Department of Social Protection (hereafter the “Department”), the Office of the Revenue Commissioners (hereafter the “Revenue”) and the Workplace Relations Commission (hereafter the “WRC”).

The Code is intended to provide a clear understanding of the employment status of individuals, taking into account current labour market practices and developments in legislation and case law.

Included below is a high level summary of the Code. A full copy of the Code can be accessed here: https://www.gov.ie/en/publication/23e13-code-of-practice-on-determining-employment-status/

General Summary of the Code:

The Code confirms that the Department, Revenue and the WRC each have a remit in determining the employment status of a person and that decisions of these bodies are not binding on each other.

The Code confirms the five-step framework for determining employment status as set out by the Supreme Court in Karshan and includes specific guidance on each question some of which is briefly summarised below.

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

Summary Guidance on Question 1: The Code indicates that 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.

Question 2: 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?

Summary Guidance on Question 2: The Code confirms that the more restrictions imposed on the freedom for a worker to appoint a substitute, the more indicative the arrangement is that of a contract of employment.

Question 3: If so, does the business exercise sufficient control over the worker to render the agreement one that is capable of being an employment agreement?

Summary Guidance on Question 3: The Code confirms that the right of the business to exercise control is more relevant than whether they actually exercise this right. The Code also confirms that when considering the issue of “control”, a decision maker may have regard to the issues of “enterprise” and “integration”.

“Enterprise” being the extent to which the worker carries risk and their ability to make financial gain through their own ingenuity/efficiency.

“Integration” being 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.

If question 1,2 or 3 above are answered negatively it means that there can be no contract of employment.

Question 4: If the above three requirements are met, all of 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.

Summary Guidance on Question 4: The Code confirms that while a detailed written agreement may carry significant weight, efforts to describe a relationship in a particular way which differs from the day-to-day reality, in order to circumvent or frustrate the operation of statutory provisions, will be challenged.

On this point the Code concludes that 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.

Question 5: 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.

Summary Guidance on Question 5: On this point the Code emphasises that in the context of the WRC determining employment status under the relevant employment legislation, the definitions of ‘contract of employment, ‘employee’ and ‘employer’ differ from one employment enactment to another. Therefore, each case lodged with the WRC for Adjudication is different and is decided on its own facts by an independent Adjudication Officer.

Pages 13-14 of the Code set out some typical characteristics of an employee as well as important caveats to same.

Pages 15-16 of the Code set out some typical characteristics of self-employment and again sets out important caveats to same.

The Code references the term “False/ Bogus self-employment” and confirms it is a term used to describe when a worker, who is in fact engaged under an employee contract of service, is knowingly recorded and reported to Revenue and the Department as if they were operating under a self-employed contract for services. The Code confirms this is a criminal offence subject to significant sanctions under the Social Welfare Acts.

The Code also goes into detail on employment status classifications in respect of people who own or control companies, agency workers, intermediary arrangements and workers in the digital/gig economy.

Of particular note is the guidance contained at page 17-19 in respect of “intermediary arrangements”.

Third Party Intermediary Companies:

The Code reflects that there are two main forms of intermediary structures used in lieu of a direct engagement between a worker providing services and the end-user of those services namely “Personal Service Companies” (hereafter “PSC’s”) and “Managed Service Companies (hereafter “MSC’s”).

The Code reflects that under a PSC arrangement a contract for services is agreed between the end-user and an intermediary company owned/directed by the worker. A PSC is generally a limited company that typically has a sole director who is the worker/contractor who owns most or all of the shares in the company.

A variation of the PSC arrangement above involves the use of what have become known as MSC’s. In essence, this involves setting up a company, which is generally structured with a number of worker shareholders who may or may not be involved in delivering similar services to the same end-user. MSC’s are typically facilitated by a third-party agent who organises the legal and administrative affairs of the Company.

Th Code confirms that notwithstanding the use of such intermediary structures, the employment relationship will still be subject to the same five questions provided for by the Karshan ruling (outlined above) when determining whether the worker is self-employed or an employee.

The Code confirms that in looking at all the facts and circumstances of the case, it is possible that a decision-maker or Adjudicator may determine that the end-user, is the employer for PRSI purposes. Each case is determined on its own facts.

Notwithstanding the above, the Code confirms that for taxation purposes, Revenue cannot, except for limited circumstances provided for in tax legislation, “look through” corporate structures.

Interestingly, the Code’s commentary on intermediary structures coincides with a timely WRC decision in which an individual worker was deemed an employee despite being paid through a third party company of which she was the sole shareholder and director - PR Company v Hotel Resort (ADJ-00046181, ADJ-00047024, ADJ-00045524, ADJ-00047375). We have written a separate article on that case which is available at this link.  However, the facts of that case were very unusual, and it will remain to be seen if a similar determination would be made in a case involving different facts.

Takeaway from Employers:

Employers should familiarise themselves with the Code and ensure that adequate analysis is undertaken of engagements with contractors so as to reduce the chances of costly consequences arising later from a mis-categorisation of the relationship.

Employers should also be mindful that contractor arrangements are something that should be kept under review as a relationship that starts out as a genuine contractor arrangement can be deemed to have become an employment relationship over time.

In addition to familiarising themselves with this newly updated Code, it would be advisable for employers to familiarise themselves with the detailed guidelines that previously issued from Revenue on this subject. Those guidelines are discussed in our previous article from June of this year available here: https://aocsolicitors.ie/new-revenue-guidelines-for-determining-employment-status/

Link:

https://www.gov.ie/en/publication/23e13-code-of-practice-on-determining-employment-status

Author – Laura Killelea

11th December 2024