New Guidance Issued on Employment Status – Introduction
Businesses that engage self-employed contractors, consultants, and freelancers should now reassess their commercial arrangements to ensure they meet the requirements for tax and employment purposes.
In May 2024, the Irish Revenue Commissioners released a guidance note detailing the factors to be considered in determining employment status for tax purposes. This guidance, while focused on tax law, also impacts employment and social welfare considerations.
Context and Legislative Changes
The European Parliament adopted the Platform Work Directive on April 24, 2024, introducing a presumption of employment for certain workers in platform work activities.
This legislative change underscores the ongoing importance of accurately determining employment status in both the gig economy and broader business contexts.
Domino’s Pizza Case
The new guidance follows a landmark decision by the Irish Supreme Court in October 2023, in The Revenue Commissioners v. Karshan (Midlands) Limited t/a Domino’s Pizza [2023] IESC 24.
We have covered this case previously on Tax Natives.
This case involved delivery drivers and fundamentally altered the analysis of employment contracts to determine whether an individual is an employee or self-employed.
The ruling has significant implications for businesses engaging individuals for personal services, whether as independent contractors, consultants, or freelancers.
Five Key Tests for Determining Employment Status
General
The Supreme Court established five key tests to determine employment status, which the Revenue Commissioners’ guidance now elaborates on with practical examples from various sectors, including construction, IT, and professional services.
Exchange of Wage or Other Remuneration
This test examines if there is an agreed rate for services provided, whether hourly, daily, or linked to specific deliverables. The nature and arrangement of any payment are crucial factors.
Personal Service
This test differentiates between individuals providing services personally and those who can delegate the work to others.
Control
The level of control the contractor has over how the work is performed is a fundamental factor. The presence of control is also critical under the Platform Directive for determining employment status.
All Circumstances of the Employment
After passing the first three tests, all facts and circumstances of the relationship must be considered, including:
- Whether the individual works for themselves or an employer.
- Interpretation and practical operation of the contract.
- Degree of control and regularity of services provided.
- Whether the individual has a duty to work regularly, indicating their independence or integration into the business
Legislative Context
The specific wording of relevant statutory regimes or legislation must be considered, as different laws may confer different rights.
For example, being taxed under the PAYE system does not automatically grant employment rights.
Implications of the Guidance Note
The Supreme Court’s decision and the Revenue guidance note clarify that transferring between taxing regimes for a tax benefit does not constitute abusive tax avoidance. Structuring one’s affairs to fall within a particular regime is considered legitimate.
Businesses must now proactively review their commercial arrangements with self-employed workers. The guidance note provides detailed examples to help businesses apply these tests in various scenarios.
Relevance to Other Laws
The Supreme Court ruling specifically addresses the Taxes Consolidation Act 1997 and does not automatically apply to other areas of law. The Revenue Commissioners emphasize ongoing engagement with government departments responsible for employment and social welfare status to ensure consistent application across different legal contexts.
Guidance Issued on Employment Status – Conclusion
The Supreme Court case and the Revenue Commissioners’ new guidance significantly impact how businesses should classify their self-employed contractors.
Businesses are advised to review and possibly restructure their current arrangements to ensure compliance with the updated requirements for tax and employment purposes.
Final thoughts
If you have any queries about this article the Guidance Issued on Employment Status, or Irish tax matters in general, then please get in touch.