Are self-employed independent contractor agreements all they seem?
The Revenue Commissioners has, for some years now, been scrutinising arrangements in which people describe themselves as self-employed consultants or “independent contractors”.
Revenue has been looking at the employment status of individuals across a number of sectors to ensure that it is in line with the 2001Code of Practice for Determining Employment or Self-Employment Status of Individuals.
While in most cases it is obvious who is an employee and who is self-employed, it can sometimes be difficult to assess whether an individual providing services to another person or business can properly be described as self-employed.
Difference between employees and self-employed
Employees are treated differently to self-employed workers in a number of ways:
1. Protective employment legislation does not apply to self-employed workers e.g. right to maternity leave, annual leave, protection against unfair dismissal, working time restrictions under the Organisation of Working Time Act 1997, minimum wage entitlements;
2. Duties are implied into an employment contract that are not implied into a contract for services, e.g. duty of mutual trust and confidence, duties/rights in respect of intellectual property;
3. Insurance against injury at work is usually paid for by employers whereas self-employed workers are usually responsible for their own insurance;
4. Damage caused by an employee may be attributed to the employer through vicarious liability;
5. Tax. An employee will have income tax and PRSI deducted from their income by the employer whereas self-employed individuals are obliged to manage their own tax affairs and file tax returns; and
6. An individual’s employment status will affect their entitlement to certain social welfare benefits (e.g. unemployment benefit, widow’s/widower’s contributory pension, old-age contributory pension and disability benefit).
Employed or self-employed?
While the terms “employed” and “self-employed” are not clearly defined in law, guidance has been provided by the courts. It is necessary to look at what the worker actually does, the way the worker does it and the terms and conditions under which the worker is engaged. What the parties call their relationship is not conclusive; it is the reality of the relationship that matters.
The courts in cases such as Denny v Minister for Social Welfare  IR 34, ESB v Minister for Social Community and Family Affairs (unreported High Court 21 February 2006), Diageo Global Supply v Rooney (PTD04) and Barry v Minister for Agriculture  IEHC 216 have laid down a number of guidelines over the years to assist in the determination of employment status, including:
- Under control of another person (employer)
- Supply your labour only
- Cannot subcontract the work
- Mutuality of obligation to offer work and perform work
- Do not supply equipment/materials for the job
- Receive fixed hourly/weekly/monthly wages
- Entitled to sick pay/holiday pay etc
- Employer provides insurance cover
- Work set number of hours per week
- Employer deducts tax from wages under PAYE
- Own your own business
- Are exposed to financial risk
- Can subcontract the work
- No mutuality of obligation
- Supply necessary equipment for the job
- Cost and agree a price for the job
- Not entitled to paid leave
- Provide your own insurance cover
- Control your own hours in fulfilling job
- You are registered for Self-Assessment and are required to file your own returns
In addition, the Revenue Code provides practical guidance on how to distinguish between an employee and a self-employed worker.
In O’Perez v Brushstrokes Fine Arts Ltd UD 897/2007, the appellant art teacher had been engaged by the respondent on a consultancy basis for 9 years. He paid for the art materials and for his own public liability insurance. The appellant argued he had been forced into working as a consultant rather than an employee, whereas the respondent claimed that in fact the appellant had chosen to be self-employed because, as an artist, he had a tax exemption. Consequently, without the requisite employee status, the Employment Appeals Tribunal (“EAT”) did not have jurisdiction to hear the claim under the Unfair Dismissals Acts 1997-2007 (the “UDA”). The EAT upheld the recommendation of the Rights Commissioner and the appellant’s appeal under the UDA failed.
Similarly, in the case of Phelan v Provident Personal Credit UD 915/2006, the EAT took account of how the practicalities of the contract were executed (i.e. the claimant filed his own tax returns, did not receive annual leave, provided his own car and mobile phone, his earnings were solely commission based) and found that the claimant was self-employed. Therefore the EAT did not have jurisdiction to hear this claim under the UDA.
Implications for employers of a finding of employee status
The distinction between self-employed workers and employees has important implications for employers, as follows:
1. Income Tax/Social Insurance
An employer is liable to deduct PAYE and PRSI at source from payments made to employees. If payments are made gross to individuals who are then found to be employees (following a Revenue audit or investigation), the employer is liable to pay to the Revenue Commissioners all tax which should have been deducted.
2. General Liability
An employer is liable for the wrongdoings of its employees but an employer is not responsible for the acts of an independent contractor.
3. Employment Legislation
If, following termination of a contract for services, a claim is successfully made by the individual before the EAT that he/she was an employee who was unfairly dismissed, an employer may be ordered to pay compensation of up to two years’ remuneration.
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