Employment Affairs and Social Protection Minister, Regina Doherty announced the launch of a public awareness campaign concerning false self-employment in May. False self-employment occurs when an employment relationship creates the bogus appearance of a worker being self-employed when the true nature of the relationship is, in fact, one of an employer and employee. The government is targeting false self-employment as it reduces PRSI contributions, reduces the Social Insurance Fund and reduces other employment-related tax revenues.
Contract of service vs contract for service
It may be useful to, first of all, clarify that a contract of service is used to govern the employer/employee relationship and a contract for services is used to govern the services of a self-employed contractor.
Useful indicators to determine correct employment status
It is important to note that the label of a contract, describing a worker as being either an employee or self-employed will not determine employment status. The terms and conditions of the contract must be examined individually and balanced against all other conditions of the working relationship.
The following tests are not an exhaustive or definitive checklist of determining factors but they remain useful indicators.
Control
The degree of control exerted over a worker is a significant indicator of the true nature of the employment relationship. A worker who must comply with instructions in relation to where, what, when and how work is carried out, is ordinarily an employee. It will not always be necessary for the employer to instruct the worker, particularly where workers have developed particular skills. The employer is merely required to retain that right. The degree of control of the employer over an employee can be identified by examining forms of verbal or written instructions, manuals provided or procedures in place. Where a low degree of control is established this will typically indicate either the employee’s level of skill (i.e. minimal supervision is required) or on the other hand that the worker is self-employed.
Provision of training
The provision of training to a worker by an organisation indicates an employer/employee relationship. Providing training indicates that an employer is concerned with the standard of the work being carried out. Contracting the work out to an expert would not generally require the provision of training.
Regular reporting
Regular reporting arrangements indicate that the worker is an employee and required to account for the work s/he is performing.
Personal service test
The obligation to provide a personal service points to a finding that the employer is not only interested in the results but also that it is a specified worker who achieves these results. Where personal service is not required a contract for services is more likely to exist. In some contracts for services, however, there may be a requirement that the self-employed worker has a particular skill which s/he personally has been contracted to supply.
Freedom to send substitutes
The freedom to send substitutes or hire helpers at the worker’s own cost is indicative of a contract for services. On the other hand, a worker who hires, supervises and pays other workers at the direction of the employer or a worker who is operating by way of a delegated duty from the employer, is more likely to be an employee. A worker who is free to send a substitute, with the prior approval of the business, and the substitute is paid by the business, is likely to be an employee.
Exclusivity
If the worker is required to provide services exclusively to one business, the worker is more likely to be deemed an employee. A self-employed contractor is more likely to work for a number of different contractors at the same time. It is important to differentiate between the independent contractor and the employee who works in a number of part-time jobs. The provision of a personal service is not proof of a contract of service but a contract of service cannot exist where there is no personal service.
Integration
Where a worker is integrated into the business process and the activities of the worker are an essential part of the organisation’s operations, it generally signifies that the worker is an employee.
Provision of equipment
The furnishing of tools, equipment and protective clothing to the worker by the employer supports a finding of a contract of service. In some occupations, however, it is customary for the worker to supply particular tools and equipment at no cost to the employer. For example, carpenters generally provide their own hand tools. Significant investment by the worker in the provision of equipment necessary for the job is more indicative of a contract for services.
Location
Working on the employer’s premises and using all the necessary facilities is typical for employees. Employees may also be required to work away from the employer’s premises because of the nature of the work while self-employed workers may likewise be required to work on a contractor’s premises and use some of their facilities under a contract for services.
Level of risk
A high level of financial risk, in capital or assets, undertaken by a worker, or being exposed to financial risk by having to bear the cost of making good faulty or substandard work, indicates that the worker is self-employed.
Having the opportunity to profit from sound management in the scheduling and performance of engagements and tasks, to employ resources or investment, and to have the freedom to make decisions accordingly indicates a contract for services. However, this does not apply where performance-related pay is a feature of the employment.
Correcting unsatisfactory work at the worker’s own expense and on the worker’s own time suggests a contract for services is in place.
Remuneration
The method of remuneration for employees is generally a fixed-rate periodical payment. The fact that remuneration is by time, by piece, on commission, on invoice, by fee or some other method that has been mutually agreed does not automatically lead to the conclusion that a worker is self-employed.
Other indicators
Mileage, subsistence and expenses paid by the business to a worker are generally indicative of a contract of service. Company sick pay, holiday pay and membership of a superannuation scheme are benefits generally provided by employers in respect of their employees. However, the absence of these benefits does not automatically confirm self-employment status.
To learn more about how employment status might affect your business, please call our 24-hour advice service on 0818 923 923
