Whether a person is considered to be an employee or self-employed is of vital importance when it comes to employment law, taxation, social welfare benefits, etc.
For example, you cannot win a claim for unfair dismissal if you were not actually an employee.
There is a new Code of Practice for giving guidance on the question of employee or independent contractor, published in July 2021.
Certain statutory bodies such as the WRC (Workplace Relations Commission), Revenue Commissioners, and the Department of Protection have the final say over whether a person is an employee or not. And the decision of one of these bodies is not binding on the other.
Therefore, you could be considered self employed by one of these bodies and an employee by one of the others.
Anyway, let’s take a look at the factors and tests which will determine the issue.
There are five ‘tests’.
- Mutuality of obligation.
To what extent are the parties obliged to one another. For example, does the ‘employer’ have to offer work? Does the employee have to accept work if it is offered? If the answer to these questions is ‘no’ then there is no mutuality of obligation, which means the employment relationship does not exist.
If the worker cannot work can he get a substitute? Who gets the substitute? Who pays the substitute?
To what extent can the worker benefit from his skill and enterprise. To what extent can he suffer losses. These are important questions to look at. If the person is totally insulated from profits and losses then she is probably an employee.
Has the worker become part of the business? Is she integrated? Or is she just doing work that is peripheral to the business?
To what extent is the worker controlled by the other party? Does she have to ask for holidays, or can she take holidays when she chooses. Can she choose what work to do and when to do it?
These tests will give solid guidance in determining the issue. But they are not bulletproof and will not give a definitive answer as to whether a person is a self-employed contractor or an employee. Each case will be determined on its own unique facts and circumstances.
Characteristics of employee
The Code of Practice also enumerates certain characteristics of employee and employer. For example, an employee
- Will only supply labour
- Receives a fixed wage
- Cannot subcontract the work
- Does not carry any financial risk
- Does not supply equipment
- Works for one business
- Works set hours which are set by the employer
These characteristics must be taken ‘in the round’ and do not determine the issue either. For example, a person may be paid by a piece rate rather than an hourly rate and could have a major say over when they work and what work they do, especially if they were highly skilled.
What is set out in a written document will not settle the issue, either, as the facts and characteristics of the relationship and the conduct between the parties is more important.
Characteristics of self-employment
- Owns the business
- Takes the risk, and the rewards
- Has control over what she does, and when, and has more than one client
- Is free to hire and fire other employees
- Takes responsibility for his own tax affairs
- Provides materials and equipment
- Has a fixed place of business where equipment, vehicles are stored
- Can take on work or refuse it
- Takes her own time off, sets holidays without reference to anyone else
Why is status important?
With regard to employment law an employee has many protections and rights by reason of being an employee. Being self-employed puts the workers in a different position entirely when it comes to rights and statutory protections.
Entitlements to social welfare benefits, job seekers benefit, tax treatments are also different, depending on which category the worker is in.
Tax liabilities will also play an immense part in a person’s status. Self-employed persons are responsible for their own taxes whilst the employer will have to reimburse the Department of Social Protection if he misclassifies an employee as self-employed as he will have an outstanding liability in respect of PRSI which should have originally been deducted.
It is strongly advisable that an employer familiarises himself with the Code of Practice. Failure to do so can store up trouble and potential claims under a range of headings in the future.