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Revenue have recently issued important new guidelines for determining the employment status for workers for taxation purposes.
Our Tax team break down the features of the new framework below.
The guidance explains the new five-step decision-making framework set out in the landmark Supreme Court judgment in Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza, that businesses are required to use to determine whether a worker is an employee or self-employed for tax purposes.
Guidance is provided on each of the steps in the decision-making framework and what the judgment means for businesses.
In summary the five questions to be considered are as follows.
- Does the contract involve the exchange of wage or other remuneration for work?
- 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?
- 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?
- If these three requirements are met, the decision maker must then 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
- Finally, it should be determined whether there is anything in the particular legislative regime under consideration that require the court to adjust or supplement any of the foregoing questions in the particular circumstances of the relationship being considered.
Revenue have also provided a number of useful examples to illustrate the practical application of the new decision-making framework.
Revenue is encouraging all businesses that are engaging contractors, sub-contractors or other workers on a self-employed basis to familiarise themselves with the judgment and review their workforce model.
Businesses are responsible for ensuring that the correct taxes are deducted from their employees’ pay and reported through the PAYE system. Revenue further advised any business which has not yet self-reviewed their workforce model in light of the Supreme Court judgment, should do so now.
We would encourage all businesses and employers to carefully review the contents of this important new Guidance and consider its potential implications.
Revenue expects that there will be an increase in the number of workers that will be determined to be employees for tax purposes once the five-step framework is applied to their facts and circumstances. Where a business previously treated a worker as self-employed, rather than as an employee, and the review of these arrangements by reference to the five-step framework indicates that they are employees for tax purposes, the business must rectify that position by treating the relevant workers as employees and operating PAYE.
Businesses should undertake a regular review of the arrangements to ensure application of the framework at that later point in time would not result in a different determination.
In some circumstances businesses may have relied on previous decisions of Deciding Officers of the Department of Social Protection to treat workers as self-employed for the purpose of tax. These previous decisions cannot be relied upon for determining the correct tax treatment.
The guidance includes general commentary on certain sectors including construction; part-time, casual and seasonal workers; workers engaged in a domestic setting; couriers and other transport providers; media; public sector, and platform operators.
The guidance stresses that the Supreme Court judgment was concerned solely with the proper tax treatment of the workers concerned. The broader question of employment rights, for PRSI purposes or otherwise, was not before the Supreme Court and was not considered by it.
Revenue is working with the Department of Social Protection and the Workplace Relations Commission to update the Code of Practice on Determining Employment Status to reflect the Supreme Court judgment.
