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26 June 2024

New Revenue Guidelines for Determining Employment Status

Caroline Murphy, author of blog about new revenue guidelines

What do the new Revenue Guidelines for Determining Employment Status mean for your business?

The Revenue published new Guidelines for Determining Employment Status for Taxation Purposes following the Supreme Court judgment in October last year in ‘The Revenue Commissioners v Karshan (Midlands) Ltd. t/a Domino’s Pizza’. The Supreme Court ruled that the pizza delivery drivers should be treated as employees and not self-employed contactors for tax purposes. However, the judgment applies to all sectors, not just delivery drivers.

Individuals engaged under a contract of service are employees and are subject to payroll taxes. Employers are required to deduct PAYE, USC and PRSI from the employee’s wages and salaries and return same to Revenue.

Individuals engaged under a contract for service are self-employed and are responsible for remitting their own taxes to Revenue. They are obliged to register for self-assessment and file their income tax returns annually on ROS.

Businesses are responsible for correctly determining the employment status of all individuals they engage and should refer to the new Revenue guidelines going forward. It is important to note that worker’s employment status for taxation purposes is not a matter of choice.

The Revenue Guidelines set out the key elements of the judgment and its implications for businesses engaging employees, workers, contractors or sub-contractors. It includes the five-step decision-making framework that businesses are required to use to determine whether a worker is an employee or self-employed for tax purposes.

What is the Decision Making Framework

The framework consists of five questions as follows:

  1. Work/Wages bargain – Does the contract involve the exchange of wage or other remuneration for work?
  2. Personal Service – 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?

This is also known as the “substitution test” i.e. has the worker the right to appoint someone else to carry out the work. Typically, a self-employed individual is free to hire other people to do the work on his/her own terms.

  1. Control – does the employer exercise sufficient control over the worker.

The guidelines remind us that the right of the business to exercise control is more relevant than whether they actually exercise this right.

  1. All the circumstances of the employment – determine whether the terms of the contract between the 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 the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer
  2. The Legislative Context – whether there is anything in the particular legislative regime under consideration that require the court to adjust or supplement any of the foregoing. The guidelines contain the example of the application of PAYE to office holders/directors.

The guidelines state that the first three questions act as a filter. If any of these are answered negatively, there cannot be a contract of employment.

Personal Service Companies

The Guidelines confirm that the recent Supreme Court judgment does not alter the position for the provision of workers through a company. The Guidelines clearly state that any engagement of companies by businesses cannot be contracts of service, or employments, for taxation purposes. Revenue do not look through corporate structures, except in very limited circumstances specifically provided for in the tax legislation.

What are the next steps?

Revenue is urging all businesses to conduct a comprehensive review of arrangements with all workers to determine their employment status for tax purposes. The decision making framework should now be used by all businesses.

Following the recent judgement and publication of the Guidelines, Revenue is expecting an increase in the number of workers that will be treated as employees and taxed under the PAYE regime.

Some sectors get a specific mention in the guidelines which may be indication of where Revenue’s initial focus will be. These include construction, part time, casual and seasonal, workers, couriers and the media.

We are available to assist you with determining the employment status of any workers you are engaging. If you have any questions in relation to the above, please contact our tax team

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