Amy McNicholas

This week, the Department of Social Protection has released its Code of Practice on Determining Employment Status, following the significant Supreme Court decision of Revenue Commissioners v Karshan (Midlands) Ltd T/A Domino’s Pizza [2023] IESC 24 last October, in which delivery drivers for Domino’s Pizza were held to be employees and not independent contractors.

Factors to be considered in determining employment status

The new Code is a welcome consolidation of the factors to be considered in determining whether a worker is an employee or self-employed and should be of benefit to a range of parties including workers, employers and decision-making bodies. Ultimately, the employment status of an individual is critical to determining how they will be treated for tax purposes and what rights they will have under employment legislation, such as sick leave, maternity leave, and protection from unfair dismissal.

The Code gives guidance on the five factors identified by the Supreme Court in Karshan, which may lead to a finding that a worker is an employee and not a self-employed contractor:

1. Whether the individual performs work in exchange for remuneration.
2. Whether the individual agrees to provide the work personally, rather than the services of a third party. The ‘substitution test’ is relevant here, as the Court will consider whether the worker has the right to appoint a substitute or subcontractor to carry out the work.
3. Whether the potential employer exercises sufficient control over the worker. This involves control over how, where and when the work is to be done, as well as the level of independence the worker has. It is irrelevant whether the potential employer actually exercises this control, provided it has the right to do so.

Two primary factors to consider in this limb of the test are ‘enterprise’ and ‘integration’.

Enterprise involves the capacity of the worker to bear risk or realise profit through their own efficiency and, may lead to a finding that they are an independent contractor.

Integration refers to the level of the involvement of the worker in a business. If the worker is only peripheral to the business, and the business could continue to operate without those services, then this will more likely lead to a finding that the worker is an independent contractor.

4. The complete factual matrix. Decision-making bodies will look beyond the wording of an agreement to the day-to-day realities of the work relationship to determine whether an individual is an employee or an independent contractor. In particular, the Code notes that decision-makers will have little regard for consequence-based wording in contracts, such as “as a self-employed contractor you will be responsible for your own tax”.
5. The legislative context. Specific legislative regimes may affect the other considerations in the 5-part test. For instance, the Code notes that the definition of ‘contract of employment’ differs between the Unfair Dismissals Act 1977 and Employment Equality Acts 1998 to 2015. Each case will turn on its own facts, and a finding of whether a worker is an employee or an independent contractor may depend on the particular legislation under consideration.

Additional considerations

In addition to this test, the Code provides guidance on typical characteristics of employees and self-employed workers at Sections 6 and 7, which can assist in determining an individual’s employment status. Section 8 also considers special circumstances which may arise in practice such as company owners who are still required to pay PRSI, agency workers, workers in Personal Service Companies and Managed Service Companies, and workers in the gig economy. Significantly, the Code notes that workers in the gig economy may be employees or self-employed, and the 5-step test should be applied to each case.

Criminal sanctions

Finally, the Code highlights that employers who falsely and knowingly state that an employee is self-employed commit a criminal offence. Where an employee is incorrectly reported as self-employed, the employer will be liable to repay all the missed PRSI contributions and may be liable to additional penalties, regardless of how long ago the period was.

The new Code definitely provides greater certainty to workers and businesses alike, and will assist in protecting the rights of workers who meet the threshold to be considered employees.

• Amy McNicholas is a solicitor and Ana Harrington is a trainee solicitor at Comyn Kelleher Tobin LLP.