New Revenue guidance on determining employment status for tax purposes

Revenue has published new guidance on determining the employment status of workers for tax purposes. The guidance follows a recent Supreme Court judgement relating to Domino's Pizza delivery drivers in the case of The Revenue Commissioners v Karshan (Midlands) Limited t/a Domino’s Pizza (“the Domino's Case”).

The Domino's Case

In the Domino's Case, the Supreme Court analysed the numerous tests that have been developed in English and Irish case law in considering whether an employment relationship exists. The Supreme Court found that Domino's delivery drivers should be classed as employees rather than as independent contractors.

Decision tree

Under the judgment, the Courts developed a five-step decision-making framework to be followed in determining an individual's employment status, whether one of service (employee) or for service (self-employed). The five questions are:

1. Does the contract involve the exchange of a wage or other remuneration for work?
2. 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?
3. 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?
4. 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.
5. Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires the court to adjust or supplement any of the foregoing.

The first three questions set out above operate as a filter, and if any of these are answered in the negative there can be no contract of employment and the individual should not be treated as an employee.

Where each of the first three questions is answered in the affirmative, then sections 4 and 5 of the framework must be considered.

Revenue guidance

The new guidance provides examples of how the decision-making framework applies to various sectors and scenarios, such as construction, media, public sector, platform operators, provision of workers through a company or an employment agency, part-time, casual and seasonal workers, workers engaged in a domestic setting, couriers, and other transport providers. This is a helpful guide for employers, but sectors and scenarios should be reviewed on a case-by-case basis as the circumstances may vary.

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 now rectify that position by treating the relevant workers as employees and operating PAYE.

Importantly, the guidance clarifies that the judgment does not change the tax position for businesses who engage companies to carry out work on their behalf, or the treatment of services supplied through a personal services company or a managed services company, which is a welcome clarification. Revenue do not look through corporate structures except in very limited circumstances.

How Crowe can help

It is essential that businesses urgently and comprehensively review arrangements with all workers and determine their employment status for taxation purposes, using the five-step framework.

We consider question 2 of the five-step framework to be of particular importance. This question relates to what is known as the substitution test and whether the worker can subcontract the work. Where the worker cannot be substituted or can only be substituted from a specific pool of preapproved workers, for example, this test is not met, and the worker should be treated as an employee.

Where businesses have relied on previous decisions of Deciding Officers of the Department of Social Protection, these cannot be relied upon for determining the correct taxation treatment going forward.

We recommend any business engaging contractors to consider this new guidance and whether it could potentially impact how their workers are treated for tax purposes.

We are available to discuss any concerns you have regarding the new guidelines and can assist with making any determinations where necessary.