Government losing tax revenue from bogus self-employment

State authorities have expressed concern at evidence of bogus self-employment and contracting work which may be depriving the Government of tax revenue and workers of sick pay and other protections.

Joint investigations involving the Revenue Commissioners and the Department of Social Protection uncovered almost 200 cases in the construction industry alone over the past year.

But authorities have also found evidence of a blurring of the lines between employees and the self-employed in a range of other sectors such as IT, media and consultancy.

Employers who label their workers as self-employed contractors are able to avoid employment rights and national insurance contributions. While much of this work is done legitimately, there is rising concern about whether some employers are deliberately misclassifiying workers to maximise profits and enhance flexibility.

The Revenue and the department recently established a joint working group following concern about whether Irish laws are fit to capture the complexity of many modern employment relationships.

“What we are seeing is an increasing diversity in the Irish labour market away from the traditional strict separation of employment and self-employment towards a more complex range of employment relationships,” says an internal Revenue briefing document. “Practices such as outsourcing and contracting-out have blurred the lines between dependent employment and self-employment.”

Autonomous

It adds: “There are undoubtedly many workers who are genuinely operating in an autonomous, self-employed capacity. There is, however, evidence of workers, who are dependent on, and subordinate to, a single employer in the same manner as employees but who (for a variety of reasons) are classified as self-employed workers.”

In EU terms, this is part of a trend towards an increasing incidence of “economically dependent workers.” The most recent OECD report in employment trends indicates about 2 per cent of the workforce, or about 38,000 workers, are classified as economically dependent self-employed.

The National Employment Rights Authority, a State body responsible for ensuring compliance with employment laws, confirmed that it has received complaints in relation to the issue. It said, however, that it does not maintain any statistics, specifically in relation to bogus self-employment.

As technology disrupts the world of work, some legal experts say it is increasingly difficult to determine the employment statuses of workers.

Darius Whelan, senior law lecturer at University College Cork, said there is no offence in law relating to an incorrect determination by an employer of the status of an individual.

“There isn’t legislation to guide this area – just case law which, in itself, is limited. We don’t see many cases, and that may be because they’re being settled or employees don’t want to risk their reputation being damaged by going to courts.”

Unpaid tax

While employers do not face prosecution for misclassifiying workers, they may face paying hefty amounts of unpaid tax and other penalties.

Internal Revenue documents indicate that there is no easy way of capturing the changes in classification of workers. It suggests a simple statutory definition of employment, though this is likely to be contentious. “The difficulty is not so much defining the employee, but the meaning of employment. It has been a meter of legal actions between unions, business representative bodies and State agencies over the years,” it adds.