New Revenue Guidelines for Determining Employment Status

Revenue have recently published its “Guidelines for Determining Employment Status for Taxation Purposes” (the “Guidelines”), to reflect the Supreme Court decision in The Revenue Commissioners v. Karshan (Midlands) Ltd t/a Dominio’s Pizza (the “Karshan Decision”).  

The Guidelines reflects the five-step framework to be followed in determining an individual’s employment status, as established by the Supreme Court in the Karshan Decision. The five-step framework is –

1. Does the contract involve the exchange of a wage or other remuneration for the work provided? Referred to in the Guidelines as “Work/Wage bargain”

2. If so, is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer? Referred to in the Guidelines as “Personal Service”

3. If so, does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement? Referred to in the Guidelines as “Control”.

4. If these three requirements are met, the decision maker must then determine whether the terms of the contract between employer and worker interpreted in the light of the admissible factual matrix, and having regard to the working arrangements between the parties as disclosed by evidence, are consistent with a contract of employment, or with some other form of contract, in particular, to whether the arrangements point to the Putative employee working for themselves or for the putative employer. Referred to in the Guidelines as “All the circumstances of the employment”.

5. Finally, it should be determined whether there is anything in the particular circumstances legislative regime under consideration that requires the court to adjust or supplement any of the foregoing. Referred to in the Guidelines as “The Legislative Context”.

The first 3 questions of the framework are to operate as a filter and if any of these questions are answered in the negative, then there can be no contract of employment. However, where the response to the first 3 questions are answered in the affirmative, the questions 4 and 5 of the framework are to be considered.

The Guidelines have expanded on the five elements of the framework over 30 pages, with extensive quotes from the Karshan Decision. It then sets out 19 examples of the application of the five-step framework.  The Guidelines have specifically referred to certain industries which, following the application of the five-step framework, Revenue consider it likely that there would be a number of employees who are currently categorized as contractors. These industries are construction, domestic setting; couriers and other transport providers, media and platform operators. It also refers to part-time, casual and seasonal workers and the public sector. It must be noted that regardless of the mention of such industries, all workers are still subject to the five-set framework before being determined to be an employee.

The Guidelines also seems to put more emphasis on the work for wage element of the first 3 questions but each of the first 3 questions of the framework are of equal weighting.

Helpfully, the Guidelines clearly states that any “engagement of companies by business cannot be contracts of service, or employment, for taxation purposes”. However, you must remember that the Department of Social Protection, unlike Revenue, is able to look beyond the corporate veil.

It should be noted that the Karshan Decision made it clear that its decision would in no way determine if the delivery driver had continuous service for the purposes of employment legislation and noted that it was a tax case and the precedent cases had been considered in light of that fact. Therefore, where a contractor may be deemed to be an employee under the framework, there is no grounds for that employee to claim that such status existed from the beginning of their engagement. Another case is required for this important element. However, this may need to be pointed out to the Workplace Relations Commission and/or the Department of Social Protection.

Employers must be aware that Revenue expects them to

1. Retain evidence that they have carried out an analysis when engaging contractors applying the five-step framework, particularly when determining that they are properly contractors, and also
2. Regularly review the contractor engagement to ensure that the application of the five-step framework has not changed over time as the relationship evolves.
3. Revenue also expects all employers to do this review on existing contractors who were engaged before the Karshan Decision.

Link  – Revenue Guideline –  https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-01-30.pdf

Authors – Anne O’Connell

16^th June 2024

Anne O’Connell Solicitors

19-22 Lower Baggot Street, Dublin 2

www.aocsolicitors.ie

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