Following the landmark judgment delivered in The Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza in October last year, Revenue have responded by removing their existing Code of Practice on Determining Employment Status with a view to providing an update.

The code is a key document for businesses as it provides guidance on whether an individual engaged by a business should be treated as an employee or a self-employed contractor.

The case in question was concerned with whether delivery drivers engaged by Domino’s Pizza were self-employed contractors under a “contract for service” and taxable under Schedule D of the Taxes Consolidation Act 1997, or employees under a “contract of service”, and subject to PAYE.

The case was found in favour of Revenue and the Tax Appeal Commissioner was entitled to conclude that the drivers were employees for the purposes of income tax. It also introduce a new 5 step test.

A key takeaway from the judgement is that the “employees” could not outsource the work to a third party. The delivery drivers could not personally engage a replacement, they alone were entitled to do the work on behalf of the company. Had they been able to get a third party to do the deliveries on their behalf it is likely the judgement would have gone the other way.

In coming to the decision, Justice Murray determined that the question of whether a contract is one “of service” or “for service” should be resolved by reference to the following five questions:

  1. Does the contract involve the exchange of 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 assumed 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 employer and worker and the actual working arrangements between the parties, are consistent with a contract of employment, or with some other form of contract.
  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.

Details of the judgment are available on the court's website here.

Revenue have encouraged any business which currently engages contractors, sub-contractors or other workers on a self-employment basis, (i.e. where that worker is not treated as an employee of the business for income tax purposes), to review the nature of any such arrangement(s) in light of this judgment and consider any implications it may have for them. It is important to note that this judgment is relevant to a broad range of work and is not limited to delivery drivers.

It should be noted that this was a tax case and was not in respect of employment rights. However, given the overlap in tests used by Revenue and other bodies determining employment rights, it should also be viewed in that wider context.

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