Irish employers should review worker taxation classifications

The guidelines follow on from a landmark Supreme Court decision last October and includes commentary from Irish Revenue on the aspects of the decision-making framework outlined in that decision. The decision-marking framework set out by the Supreme Court consist of five questions that should be used to resolve the issue of whether a contract is one of service (employee) or one for service (self-employed).

Robert Dever, tax expert at Pinsent Masons, said: “It is essential that businesses consider the new guidelines in conjunction with the Supreme Court judgement in order to determine whether workers are being correctly classified for tax purposes. This will be particularly relevant for businesses in certain sectors where Irish Revenue is likely to closely scrutinise the relationships with workers going forward.”

For example, the guidance makes clear that Irish Revenue does not envisage that unskilled workers in the retail or hospitality sectors, or any worker providing labour only services in the construction or transport sectors, will be anything other than employees.

The decision-making framework consists of five questions. The first three questions act as a filer. First of all, businesses should ask if the contract involves the exchange of wage or other renumeration for work. If so, is the agreement one under which the worker is agreeing to provide their own services, and not those of a third party. Then, businesses should ask whether the employer exercises sufficient control over the employee to render the agreement one that is capable of being an employment agreement.

If the first three questions are answered in the affirmative, the employer must decide whether the terms of the contract between the employer and worker are consistent with a contract of employment. Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires the court to adjust or supplement any of the previously asked questions.

Where any of the first three questions are answered negatively, a contract of employment cannot exist.

The guidance expands on each of the above questions and also includes some general commentary in relation to specific sectors. This includes construction; part-time, casual and seasonal workers; workers engaged in a domestic setting; couriers and other transport providers; media; public sector, and platform operators.

“While the commentary here is useful in terms of clarifying Irish Revenue’s understanding of the Supreme Court’s decision-making framework, it is important to remember that it is not legally binding,” said Dever.

The guidance also includes 19 case studies illustrating the practical application of the decision-making framework. These case studies demonstrate the approach that Irish Revenue expects to be taken by businesses. However, “the relationship between a business and a worker will always need to be examined on a case-by-case basis in light of its own facts and circumstances,” said Dever.

The guidance confirms that there is no change to the tax position for businesses which engage personal service companies or managed service companies to carry out work on their behalf. However, the decision-making framework may still be relevant to the employment status of workers contracting with a personal or managed service company.

Irish Revenue does not regard the taxation of workers employed through an agency any differently to the taxation of workers employed by any other means. As such, the PAYE system needs to be operated by whoever is paying the worker placed with a business, whether that be the agency or the business itself.

Dever said: “Even where a business is satisfied that relevant workers have been correctly classified as independent contractors, it should retain documentary evidence of the carrying out of the relevant analysis in the event of a future Revenue audit or other form of compliance intervention. Any relevant arrangements should also be continually monitored as the position may change over time as the relationship between the business and the worker or workers evolve.”