Stronger deterrents urged against employers misclassifying individuals as self-employed

The Government should put in place new measures to act as stronger deterrents against employers misclassifying individuals as self-employed, an Oireachtas committee has urged.

The chairman of the Joint Committee on Social Protection, Community and Rural Development and the Islands Denis Naughten said bogus self employment – where an employer deliberately misclassifies a worker as self-employed to avoid their employer obligations under both the tax regime and employment law – could have long-term effects on those workers' contributions records.

“Workers who are misclassified as self-employed rather than as employees can experience difficulties accessing certain social protections due to the lack of PRSI contributions paid on their behalf by their employer”, he said.

Among 13 recommendations in a report issued on Wednesday the committee urged that the current code of practice for determining the employment or self-employment status of individuals should be updated and placed on a statutory footing by the end of this year.

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The committee said it was concerned that current deterrents were not strong enough to prevent employers from intentionally misclassifying workers as self-employed.

“The Committee acknowledges that if a worker is reclassified as an employee that their employer is liable to pay the backdated PRSI contributions that they previously avoided. These are then added to the employee’s contribution record. The Committee notes that under the Workplace Relations Act 2015 that employers found to have wrongly classified someone as self-employed are liable to backdate the PRSI contributions they avoided for a period of six months.

“The Committee is of the opinion that avoided PRSI contributions should be backdated by a period of six years as this would act as a stronger deterrent.”

Dedicated unit

The committee also recommended that the establishment of a dedicated and appropriately resourced employment status unit in the Workplace Relations Commission to examine and provide determinations on employment status cases, regardless of whether they relate to social insurance, employment rights or tax obligations.

It said the Department of Social Protection should run an advertisement campaign informing the public that they can apply to have their employment status re-determined in certain circumstances.

The report also urged the development of a framework for collecting data on areas of employment where there was a potential or known risk of bogus self-employment in the medium to long-term.

It also said applications for classification of employment status should receive a decision within six months.

The committee also proposed that the standard definitions of the words “employee” and “worker” be developed and applied to all pieces of employment legislation.

The committee report said that targeted inspections by the Department of Social Protection and the Revenue Commissioners into this area “appear to achieve substantial results”.

“The Committee was informed that a joint investigation unit (JIU) inspection of the construction industry in 2018 resulted in 500 workers being reclassified as employees and €62 million being recovered for the Exchequer.”

The report also said that towards the end of 2019 the Department of Social Protection established the Employment Status Investigations Unit (ESIU) to focus on detecting and investigating false self-employment.

It said areas of employment where the ESIU had carried out inspections include the construction industry, meat processing, retail, fitness and the language training sector.

“The Minister for Social Protection stated in the Dáil, in response to a Parliamentary Question, that since it began its operations the ESIU has recovered approximately €279,000 in PRSI savings."