Background
Following the Irish Supreme Court’s unanimous decision in The Revenue Commissioners v Karshan (Midlands) Limited t/a Domino’s Pizza (the “Karshan Case”) in October 2023, Revenue have recently published their ‘ Guidelines for Determining Employment Status for Taxation Purposes’, to reflect the principles set out in the Supreme Court judgment in the Karshan Case.
Five-step Framework
In the Karshan Case, the Supreme Court found that the delivery drivers of Karshan (t/a as Domino's pizza) should be classed as employees, rather than independent contractors. In reaching this decision, the Supreme Court extensively analysed the numerous tests that have been developed in English and Irish case law in considering whether an employment relationship exists. In this regard, the Supreme Court set out a five-step framework to be followed in determining an individual’s employment status:
(i) Does the contract involve the exchange of a wage or other remuneration for the work provided?
(ii) 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?
(iii) 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?
(iv) If (i) – (iii) are satisfied, the decision maker must then determine whether the terms of the contract between employer and worker and the related working arrangements are consistent with an employment contract, or with some other form of contract.
(v) 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.
Essentially, the first 3 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. On the other hand, where the response to each of the first 3 questions is answered in the affirmative, then limbs 4 and 5 of the framework must be considered.
The Guidelines
In March this year, Revenue provided interested stakeholders with an opportunity to provide feedback on a draft of the Guidelines, and Matheson welcomed the opportunity to assist in providing feedback on the Guidelines through representative bodies.
In terms of helpful aspects of the Guidelines, we would note the following:
- There are 19 examples included in the Guidelines, which demonstrate the practical application of the five-step framework in a number of different ‘real life’ fact patterns. Feedback was provided on some of these examples contained in the draft Guidelines, where it was felt that Revenue were jumping to a “contract of service” conclusion in circumstances where there wasn’t enough information in the example to reach this conclusion. The relevant examples have been amended accordingly.
- Section 4.3 of the guidance is helpful in that it clearly states that any “engagement of companies by businesses cannot be contracts of service, or employments, for taxation purposes” (emphasis added).
However, there are certain aspects of the Guidelines which are problematic:
- At section 1 of the Guidelines, Revenue have made a statement that workers engaged to carry out one job, gig or shift “will generally be an employee for tax purposes for that one job, gig or shift” without referring to the five-step framework, which is unhelpful. However, in section 4.2.7 of the Guidelines Revenue again references “gig economy” workers, and in this section Revenue helpfully refer to the appropriate application of the five-step framework.
- In a number of instances, for example in section 3.1, Revenue overemphasise the “work / wage bargain” limb of the five-step framework, saying that where this is satisfied this “would strongly suggest that… there is likely to be a contract of employment unless it can be clearly demonstrated otherwise”. This statement is incorrect on the basis that the “work / wage bargain” limb is merely one of the three “filter” limbs and each of these three limbs are equally weighted, such that if the answer to any of the initial three “filter” questions is “no”, there will be no employment relationship.
Concluding remarks and key takeaways
One key point to underline is that in the Supreme Court’s judgment, the Court explicitly acknowledged that its decision would in no way determine if the delivery drivers had continuous service for the purposes of employment legislation, and noted that this was a tax case and the authorities had been considered in light of that fact.
It is advisable that all businesses familiarise themselves with the Guidelines and the Supreme Court judgment. It is vitally important for any business engaging (currently or historically) contractors, sub-contractors or other workers on a self-employed basis, to examine such arrangements (both now and on an ongoing basis) in light of the five-step framework in order to ensure these individuals have the correct status (ie, independent contractor or employee); and to take any appropriate steps as a result of the reviews. Such reviews are particularly important for business in the industries and sectors that are specifically mentioned in the Guidelines.
In addition, as explicitly stated in the Guidelines, it will be prudent for businesses to (i) retain evidence that they have carried out an analysis applying the five-step framework, and (ii) regularly review their engagements to ensure that the application of the five-step framework does not change over time as the relationship evolves.
If you require support in undertaking these reviews, or in determining appropriate next steps as a result of the reviews, please contact a member of Matheson’s Tax team or Employment, Pensions and Benefits team.