Ireland: Determining Employment Status and the Updated Code of Practice | iGlobal Law

The updated Code of Practice – found here – on Determining Employment Status was introduced following the Supreme Court’s landmark Karshan case, where delivery drivers were held to be employees rather than contractors. The Code, developed by the Department of Social Protection, the Revenue Commissioners, and the WRC, offers clarity for employers assessing worker status.

Accurate classification of workers is critical. Misclassifying employees as self-employed can expose businesses to legal claims, tax liabilities, and PRSI issues; while deliberately misclassifying employees as self-employed is a criminal offence. The Code stresses the importance of aligning classification with reality, not just contract wording.

The Five Step Test

At the core of the Code is a five-step framework based on the Karshan ruling. The test helps determine whether an individual is an employee by examining both contractual terms and the practical nature of the working relationship.

Step 1: Is There Payment for Work?

A contract (express or implied) must exist where work is exchanged for remuneration. One-off or recurring engagements involving payment may establish an employment relationship.

Step 2: Is There a Personal Service Commitment?

This question explores whether the individual is obliged to perform the work themselves (the “substitution test”). If the worker cannot freely send a substitute – or the business restricts who can be substituted – this leans towards employment.

Step 3: Is There Sufficient Control?

This step assesses the business’s right to direct how, when, and where the work is performed. The analysis also considers integration (whether the worker is part of the business) and enterprise (who bears risk and stands to gain from efficiency).

If any of the above three questions are answered “no,” then there is no employment contract.

Step 4: What Is the Reality of the Relationship?

If the first three steps point to employment, the next step is to examine the full context of the working arrangement. A written contract is not decisive – what matters is how the relationship functions day-to-day.

Step 5: Are There Legal or Sector-Specific Factors?

Some statutory definitions or regulatory contexts may influence the outcome—for instance, someone might be an employee for social welfare purposes but self-employed for tax.

Key Characteristics of Each Status

While no single factor is conclusive, the Code highlights typical features.

Indicators of Employment:

Subject to direction and control;
Paid regular wages;
Cannot subcontract;
Uses employer’s tools/materials;
Has no financial risk or business investment;
Works set hours, usually for one business;
May receive sick pay or overtime.

Indicators of Self-Employment:

Owns a business and can make a profit/loss;
Bears responsibility for quality and cost of work;
Can hire others and work for multiple clients;
Controls how/when work is done;
Supplies materials and equipment;
Has their own premises and insurance.

The Revenue’s accompanying Guidelines include 19 case studies applying these criteria to real-world scenarios, valuable reference points for businesses. The Code also covers complex cases like agency workers, those using intermediaries, and individuals in the gig economy.

This is a high level general update only. Legal advice should be obtained on specific circumstances.