The Code of Practice on Determining Employment Status

by Laura Ryan, Associate in the Employment Law and Benefits team at Mason Hayes & Curran

The Code of Practice on Determining Employment Status (the COP) was first introduced in 2001. Since then, Ireland’s labour market has changed significantly. The emergence of new forms of work, most particularly, the gig economy, have influenced amendments to legislation. It has also led to a new body of case law on the subject. The updated COP is intended to be a living document that will be updated to reflect these ongoing changes. The Government has also indicated that it intends to put the COP on a legislative footing by the end of 2021.

There are no legal definitions for the terms ‘employee’ or ‘self-employed’. The COP does not provide definitions for these terms either. The COP instead identifies the five legal tests for determining employment status which have developed over time from the relevant case law.

The tests include:

1. Mutuality of obligation

Whether and to what extent there is an obligation on one party to provide work and on the other party to accept it.

2. Substitution

Whether and to what extent the worker is allowed to send a substitute in the event that they are unable to do the work themselves and, if applicable, who engages and pays this substitute.

3. The enterprise test

Whether and to what extent the person who has been engaged to carry out the work is doing so as a person in business on their own account and has the ability to profit from their own efficiency/entrepreneurial skill or, conversely, runs the risk of suffering a financial loss.

4. Integration

Whether and to what extent a worker has become an integral part of a business, as opposed to carrying out work that, although done for the business, is peripheral or accessory to it.

5. Control

Whether and to what extent the person or business paying for the work has control over the worker, including the power to decide what work should be done, as well as when, how and where it should be done.

As stated in the COP, these tests are not, on their own, determinative. Instead, they must all be used when looking at the employment relationship in reality. The tests are applicable to traditional working arrangements, intermediary arrangements,such as personal services companies and managed service companies, and to those engaged in the digital or gig economy.

Although the tests are helpful, from a practical perspective, they do not always answer the vexing question as to whether one is an ‘employee’ or a ‘self-employed person’. The COP does provide some useful guidance, as it includes a list of typical characteristics of an employment relationship and of self-employment. Many employers will be familiar with these characteristics but, in some cases, they will have become outdated. Possibly in recognition of this, the COP also includes caveats to these characterises which are of further assistance.

Characteristics of employment

An employee:

• Supplies labour only
• Cannot subcontract the work
• Receives a fixed hourly/weekly/monthly wage
• Does not supply materials or equipment for the job
• Does not assume any responsibility for investment and management in the business
• Is not exposed to personal financial risk in carrying out the work
• Works set hours or a given number of hours per week or month, and
• Work for one person or one business

Important caveats to note:

• It is possible for the subcontracting of work to simply be a transfer of the employer/employee relationship
• The provision of tools or equipment may not always determine employment status when 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 employee with specialist knowledge might have freedom to decide how the work is carried out
• 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 employees work for more than one employer at the same time
• Some employees may also be self-employed in respect of other work he or she engages in
• A decision not to make deductions through the PAYE system does not render a person ‘self-employed’, especially where ‘employee’ characteristics exist
• The place of work is not determinative of employment status – whether it is in an office or at home
• Statements in written contracts as to the status of a worker are of little value and are capable of being overruled
• 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

Characteristics of self-employment

A self-employed individual:

• Owns their own business
• Assumes responsibility for the investment and management of the enterprise
• Has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks
• Has control over what is done, how, when and where it is done and whether he or she does it personally
• Is free to hire other people, on his or her terms, 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
• Provides the materials for the job
• Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment
• Has a fixed place of business where materials, equipment etc. can be stored, and
• Is not obliged to take on specific work offered to them

Important caveats to note:

• The fact that an individual has registered for self-assessment 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

Why is determining employment status important?

Whether a worker is an employee or is self-employed has very significant implications for PRSI contributions, entitlements to social welfare benefits, tax treatments and employment rights. An employee has rights in respect of working time, holidays, family leave and protection from unfair dismissal. In contrast, a self-employed person does not. From an insurance perspective, correct classification is important because if a worker is self-employed, he or she should generally hold their own insurance. An employee, however, will be covered by their employer’s employer liability insurance, provided the employer has it. Most importantly, an employer who incorrectly classifies an employee as a self-employed worker will be required to reimburse the Department of Social Protection for the unpaid PRSI contributions that it should have originally deducted. The employer will also be financially responsible for any unpaid income tax in respect of the fees paid. The employer will not have control over the income tax paid by the self- employed person in their personal tax returns.

Who has the final say over determining employment status?

The employment status under which a worker is engaged will generally be agreed between the worker and the employer/client at the outset. If, however, the determination is called into question, a decision will be made by the relevant statutory body depending on whether it relates to PRSI payments, tax payments or employment rights.

In these circumstances the relevant bodies are:

• The Scope Section in the Department of Social Protection
• The Office of the Revenue Commissioners, and
• The Adjudication Service of the Workplace Relations Commission

It should be noted that these bodies’ decisions are not binding on each other.

Conclusion

Employers should familiarise themselves with the COP. The intention of the parties regarding the classification of a working arrangement is important, as is the description they attribute to the relationship. However, the true nature of the relationship can only be ascertained once all the relevant tests, characteristics and caveats have been looked at. Where clients engage workers in atypical arrangements, we strongly recommend that they consider how the working arrangement will apply in practice on a day-to-day basis before an individual is labelled as an employee or self-employed.

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

About the author

Laura is an associate in the employment law and benefits team at Mason Hayes & Curran. She advises clients on all aspects of employment law relating to both contentious and non-contentious matters. Laura regularly reviews clients’ employment contracts and policies to ensure compliance with Irish law and best practice. In addition, Laura provides updates on new legislation and codes of practice to clients.