What are the differences in Employee V Contractor?

There is a key distinction in employment law between a “contract for services” and an employment contract. An employee works under an employment contract, whereas an independent contractor provides services under a contract for services.

If the services are provided by an independent contractor then the relationship is purely commercial and any termination of the contract can only be disputed as breach of a commercial agreement.

The rise of the gig economy has seen many people who work for one employer classed incorrectly as independent contractors. However, we are seeing a trend of increased claims before the Workplace Relations Commission (WRC) of workers classified as independent contractors who should, in reality, be classed as employees.

Confusion surrounding the terms “employed” and “self-employed” may stem from the fact that they are not defined in law, however, a Code of Practice was developed in 2012 by The Office of the Revenue Commissioners and the Department of Social, Community & Family Affairs, in consultation with the Social Partners in order to establish a uniform definition of ‘employee’ based on clear criteria, which will determine the employment status of an individual.

The Code of Practice states that “the decision as to which category an individual belongs must be arrived at by looking at what the individual actually does, the way he or she does it and the terms and conditions under which he or she is engaged, be they written, verbal or implied or a combination of all three. It is not simply a matter of calling a job ‘employment’ or ‘self-employment’”.

When assessing whether or not a person is engaged under a contract of service (employee) or under a contract for services (self-employed) there are 4 main factors to be considered:

Does the person doing the work:

• assume any responsibility for investment and management in the business
• otherwise take any financial risk
• provide his/her own equipment or helpers or
• have the opportunity to profit from sound management in the performance of his/her task

Generally, it will be clear whether an individual is employed or self-employed. However, it may not always be so obvious, which in turn can lead to misconceptions in relation to the employment status of individuals.

In cases that are not clear-cut the following criteria can be used to help establish the status of the worker:

An individual would normally be an employee if he or she:

• Is under the control of another person who directs as to how, when and where the work is to be carried out
• Supplies labour only
• Receives a fixed hourly/weekly/monthly wage
• Cannot sub-contract the work. If the work can be subcontracted and paid on by the person subcontracting the work, the employer/employee relationship may simply be transferred on.
• Does not supply materials for the job
• Does not provide equipment other than the small tools of the trade. The provision of tools or equipment might not have a significant bearing on coming to a conclusion that employment status may be appropriate having regard to all the circumstances of a particular case.
• 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 arising from the engagements
• Works set hours or a given number of hours per week or month
• Works for one person or for one business
• Receives expense payments to cover subsistence and/or travel expenses
• Is entitled to extra pay or time off for overtime.

In the event that you are still unable to establish if the person is an employee or a contractor there additional factors may be taken into consideration:

• An individual could have considerable freedom and independence in carrying out work and still remain an employee
• An employee with specialist knowledge may not be directed as to how the work is carried out
• An individual who is paid by commission, by share, or by piecework, or in some other atypical fashion may still be regarded as an employee
• Some employees work for more than one employer at the same time.
• Some employees do not work on the employer’ s premises
• There are special PRSI rules for the employment of family members

The Code of Practice also confirmed that statements such as:

“You are deemed to be an independent contractor”

“It shall be your duty to pay and discharge such taxes and charges as may be payable out of such fees to the Revenue Commissioners or otherwise”

“It is agreed that the provisions of the Unfair Dismissals Act 1977 shall not apply etc.”

“You will not be an employee of this company”

“You will be responsible for your own tax affairs”

are not contractual terms and have little or no contractual validity. While they may express an opinion of the contacting parties they are of minimal value in coming to a conclusion as to the work status of the person engaged.

In 2016, the government announced a public consultation into the use by employers of mechanisms to avoid employment and tax liabilities. A report based on the findings - “The use of intermediary-type structures and self-employment arrangements: Implications for Social Insurance and Tax Revenues’ – was published by the Department of Employment Affairs and Social Protection, the Department of Finance and the Revenue Commissioners in January 2018. One of the recommendations in the report is that a greater awareness of the remit of the Department of Employment Affairs and Social Protection Scope Section among workers and employers could help to reduce the prevalence of ‘disguised employment’. This service, as well as options available through the Workplace Relations Commission Adjudication Service, will most certainly mean that this is remains a very topical issue for the foreseeable future.