The Department of Social Protection has introduced a new Code of Practice on Determining Employment Status, providing clarity in the wake of the Supreme Court’s decision in Revenue Commissioners v Karshan (Midlands) Ltd T/A Domino’s Pizza [2023] IESC 24. This decision, which found Domino’s delivery drivers to be employees rather than independent contractors, underscores the critical importance of correctly identifying employment status for workers, employers, and decision-making bodies.

Why Employment Status Matters

Determining whether a worker is an employee or self-employed has significant implications. It dictates how they’re taxed and their entitlements under employment law, including rights to sick leave, maternity leave, and protection from unfair dismissal. The Code consolidates the factors that decision-makers must assess, offering guidance to ensure workers’ rights are upheld while giving businesses a clear framework to follow.

Key Factors in Determining Employment Status

The Supreme Court identified five key factors to consider when assessing if an individual is an employee or a self-employed contractor. The new Code elaborates on these, offering detailed guidance:

1. Remuneration for Work: If the individual performs work in exchange for payment, this may suggest an employment relationship.
2. Personal Service: A critical factor is whether the worker agrees to perform the work personally or can substitute someone else to do it. This ‘substitution test’ is a strong indicator of independent contractor status if the worker has the right to appoint a substitute.
3. Control: The level of control exercised by the employer over how, where, and when the work is performed is significant. Even if the employer doesn’t exercise this control, having the right to do so suggests an employment relationship.
4. Enterprise vs. Integration:
   • Enterprise: Does the worker bear financial risk or profit from their efficiency? This leans toward self-employment.
   • Integration: Is the worker closely involved in the business or peripheral to it? Workers who are integral to the business are more likely to be employees.
5. Factual Matrix: Beyond contract wording, decision-makers examine the actual day-to-day realities of the work arrangement. Clauses that describe the worker as self-employed will hold little weight if they do not reflect the relationship in practice.
6. Legislative Context: The definition of employment may vary across legislative regimes. For example, the criteria under the Unfair Dismissals Act differ from those under the Employment Equality Acts. Each case is assessed on its facts and the relevant legislation.

Practical Guidance

Sections 6 and 7 of the Code outline common characteristics of employees and self-employed individuals, while Section 8 addresses special situations like gig workers, agency workers, and company owners. Notably, gig economy workers, who often face uncertain employment classifications, should be assessed using the five-part test.

Consequences for Employers

Employers must exercise caution, as falsely declaring employees as self-employed constitutes a criminal offence. Such misclassification can lead to:

• Repayment of missed PRSI contributions.
• Additional financial penalties.
• Criminal prosecution in serious cases.

Ensuring Compliance

The new Code is a step forward in promoting fairness and compliance in the workplace. It empowers workers to assert their rights and equips employers with the tools to classify workers correctly. For businesses, compliance is not just about avoiding penalties; it’s about fostering trust and accountability.

Conclusion

The release of this new Code provides valuable clarity for all stakeholders. Workers can feel more confident that their rights will be protected, and businesses have a clear framework for assessing employment relationships. If you have questions about how this Code impacts your business or employment situation, contact our team at Employment Matters. We’re here to guide you through the complexities of employment law and help you navigate these changes with confidence.