Updated Revenue Guidelines on Determining Employment Status

Daniel Spring

Employment Law Update

13 June 2024

In May, Revenue published new guidelines for determining employment status for taxation purposes. These guidelines were drafted in light of the October 2023 Supreme Court decision in Karshan (Midlands) Ltd t/a Domino’s Pizza v The Revenue Commissioners (“Karshan”). 

The guidelines are clear and comprehensive and contain 16 examples of the assessment of whether a person is engaged as an employee or not.  The guidelines state in the introduction: “As outlined throughout these guidelines, there are a number of workers across a number of sectors who will need to be treated as employees for tax purposes, where previously they have been treated as self-employed. It is essential that businesses urgently and comprehensively review arrangements with all workers and determine their employment status for taxation purposes.”  The guidelines are available here: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-01-30.pdf

Supreme Court decision in Karshan – five stage test for employment status

 The question before the Supreme Court in Karshan was whether delivery drivers engaged by Karshan (Midlands) Ltd t/a Domino’s Pizza were “employees” or independent contractors for the purposes of the Taxes Consolidation Act 1997.  The Act does not contain a definition of “employee”.  The gig economy, where workers, such as the drivers in this case, are providing their work intermittently, has posed difficulties in ascertaining the true employment status of such workers. While the relevant contract might state that such workers are “independent” contractors, they may in fact be very “dependent”. 

Karshan contended that drivers who provided delivery services for its pizza business were engaged as independent contractors.  Revenue contended that they were employees. The Supreme Court in this lengthy and detailed decision provided welcome clarification on the test to be applied to determine if a person is an employee. It set out a five-stage test for the assessment of employment status:

1. Does the contract involve the exchange of wage or other remuneration for work?  
2. Personal service

Is the agreement one under which the worker is agreeing to provide their own services, and not those of a third party, to the employer? This, the Court said, is “the essence of an employment agreement.”  It said also that “some degree of limited substitution is permissible.”

1. Control

Does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?   

1. All the circumstances of employment

The Court said that the first three questions are filters. If any of those three questions are answered negatively, there can be no contract of employment. If the arrangement passes the first three questions, then all the circumstances must then be considered. 

The Court said that this means (i) the contract must be interpreted in light of the factual matrix in which it was concluded; (ii) the actual dealings of the parties must be taken into account; (iii) this requirement is free standing, in that no presumption can be drawn from the answers to the first three questions.  The onus of proof is the ordinary one on the party who asserts any proposition of fact, law or mixed fact and law; (iv) if the contract is not of employment, it is something else.  To resolve the question of whether it is an employment contract, the answer must be established what kind of contract it actually is, e.g, independent contractor, partner, licence agreement.  It will be appropriate to consider the question of control again at this stage.  

The Supreme Court said that single stints of work are capable in law of comprising contracts of employment.

1. The legislative context

Finally, the Court said 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 these considerations. 

Updated Code of Practice on Determining Employment Status awaited

Separately to these guidelines, Revenue, the Workplace Relations Commission and the Department of Social Protection are working on an update to the existing Code of Practice on Determining Employment Status.  That Code is particularly helpful in relation to the question of a person’s employment status in relation to employment rights. The updated Code is now awaited.

Key contacts:

For further information on this topic, please contact Feidhlim Mac Róibín, solicitor or Jennifer McCarthy, Partner.

This update is provided for information purposes only and is not legal or other advice.