When deciding on engaging individuals to carry out work, employers must consider the type of engagement in terms of the contractual relationship that will preside over it. Employers may engage someone under a contract of employment or a self employed contract.
The distinction is important because it will define the obligations of the employer and the rights of the individual. When employers have not given full consideration to the relationship, the lines can become blurred and lead to unintentional repercussions for the employer when it comes to ending a contract, for example.
A Code of Practice exists which, whilst not having legislative effect, provides criteria or guidelines for differentiation in the event of a dispute over employee status. Employers are advised that in determining employee status, the job as a whole must be assessed including working conditions and the reality of the relationship. The overriding question will be whether the person performing the work does so as “a person in business on their own account”.
Individuals are categorised into two different categories of 'employment':
- employee
- self-employed.
The criteria by which legal classifications are determined are not laid down in legislation but have largely developed through case law.
Employee characteristics
An employee works under a contract of service, which may be express or implied. Tests for employment include whether:
- the individual is under the control of the employer
- the individual is part and parcel of the employer's undertaking
- the individual is not in business on their own account
- the arrangements for pay eg whether the individual receives holiday pay.
For the purposes of employment rights, individuals who undertake work on a casual, standby basis are classed as employees.
Self-employed characteristics
A self-employed individual is in business on their own account - for example, provides own tools (other than hand tools) and accepts risk.
Under the Programme for Prosperity and Fairness the Employment Status Group was established in order to address the growing concern that there were increasing numbers of individuals categorised as self-employed, when the indicators were that these people should have been categorised as employees. The Group issued a code of practice in 2001 to provide guidance in determining employee status. The aim of this code is to provide a definition of an "employee" in order to differentiate between a person who is "employed" and a person who is "self-employed".
Traditionally the distinction between both has been that an employee is employed under a "contract of service" and a self-employed person is employed under a "contract for services". Case law has provided some tests that assess such areas as responsibility for investment or management, financial risk and gain and provision of equipment. These tests have been incorporated into the code.
The Code of Practice states that the following factors will be considered as indicating that an individual is an employee, though a determination will always be made on all of the facts of a case:
- works for one person or for one business
- is under the control of another person who directs as to how, when and where the work is done
- supplies labour only
- receives a fixed hourly/weekly/ monthly wage
- receives expense payments to cover
- may be entitled to extra pay or time off for overtime
- cannot sub-contract work
- works set hours or a given number of hours per week or month
- does not supply materials for the job
- does not provide equipment other than the small tools of the trade
- is not exposed to personal financial risk in carrying out the work
- does not assume any responsibility for investment and management in the business
- does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks
The Code of Practice provides that the following factors will be considered as indicating that an individual is self-employed, though a determination will always be made on all of the facts of a case:
- owns his or her own business
- has control over what is done, how it is done, directs as to how, when and where the work is done and whether he or to be carried out
- is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken
- costs and agrees a price for the job
- provides his or her own insurance cover public liability etc
- can provide the same services to more than person or business at the same time
- controls the hours of work in fulfilling the job obligations
- provides the materials for the job
- provides equipment and machinery necessary for the job other than the small tools of the trade which in an overall context would not be an indicator of a person in business on their own account
- has a fixed place of business where materials equipment etc. can be stored
- is exposed to financial risk, by having to bear the cost of making good faulty or substandard engagements or in the performance of tasks
The status of an individual will affect which rights apply to them. All of the employment rights explained within these pages are available to employees, such as the right not to be unfairly dismissed and statutory redundancy pay (both subject to qualifying service), maternity leave, parental leave, annual leave, rights upon a transfer of undertaking, right to receive a pay slip, national minimum wage etc. The following are also dependent on employment status:
- the way in which tax and PRSI is payable to the Collector-General. An employee will have tax and PRSI deducted from his or her income. A self-employed person is obliged to pay preliminary tax and file income tax returns whether or not he or she is asked for them
- entitlement to a number of social welfare benefits, such as unemployment and disability benefits. An employee will be entitled to unemployment, disability and invalidity benefits, whereas a self-employed person will not have these entitlements
- public liability in respect of the work done.