Thomas Kane Tax Advisory Services

Employee v Self-Employed

The recent ruling by the Appeals Commissioner that medical locums are now to be treated as PAYE employees rather than self-employed self-assessed tax payers highlights the sometimes fine line between an individual being classed as an employee or self-employed. This is an area of importance both for employers (and individuals or companies engaging a self-employed contractor) and for employees (and self-employed individuals).

As the medical locums case shows employers who are found not to have been applying the PAYE system to payments to employees will be held liable by the Revenue Commissioners for the taxes that they should have collected, along with any interest and penalties.

Erroneous failure to apply the PAYE system can also be damaging to the employee, as they are treated as self-employed, which carries the following responsibilities and characteristics:

  • They are not entitled to redundancy payments.
  • They are not automatically entitled to Jobseekers Benefit.
  • They have an obligation to file an annual income tax return.
  • They may be obliged to charge VAT.

It is therefore to the benefit of both employers and employees that the PAYE system is applied when it is correct to do so.

Whether a worker is characterised as an employee or self-employed is not a matter of choice. It depends on the terms and conditions of the individual’s engagement. In most instances it is relatively straightforward to determine if an individual is an employee or self-employed but it is not always obvious. However, there are certain characteristics that indicate the status of the worker. An employee is generally:

  • Under the control of another person who directs how, when and where the work is to be carried out.
  • Supplies labour only.
  • Receives a fixed hourly/weekly/monthly wage.
  • Is not exposed to financial risk in carrying out the work.
  • Does not supply materials.
  • Does not have the opportunity to profit from sound management of the work engagements.

A self-employed individual generally:

  • Owns their own business.
  • Is exposed to financial risk.
  • Has the opportunity to profit from sound management of the work engagements.
  • Has control over how, when and where the work is done.
  • Is free to do the work themselves or hire other people.
  • Provide materials for the job and equipment and machinery to carry out the job.

These are not exhaustive lists and in any one circumstance different characteristics may lead to different conclusions as to the nature of the engagement. Ultimately, the overriding test is whether the person performing the work does so as a person in business on their own account.

Thomas Kane Tax Advisory Services