Employee vs Self Employed by Mairéad Hennessy

Employee vs Self Employed 

by Mairéad Hennessy

There has been much activity regarding the employment status of individuals in recent years. The area continues to be a target for Revenue scrutiny and there have been cases before the Tax Appeal Commission (TAC) and the Irish courts in recent years. 

The implications for businesses are stark. From a practical perspective, businesses need to be aware that if Revenue find that an individual is an employee rather than a self-employed contractor, then the business engaging the individual will be held liable to account for any shortfall of PAYE, PRSI and USC due. 

A laptop by a window and a green, flourishing plant

Dominos Pizza Case

In December 2019, the Irish High Court delivered it verdict on the employment status in the “gig economy” in the Dominos Pizza case (Karshan (Midlands) Limited (t/a Dominos Pizza) v Revenue Commissioners [2019] IEHC 894).

The facts of the case may be summarized as follows:

  • Karshan offered customers the option of having orders delivered to their home and it engaged a number of drivers to carry out the deliveries using their own vehicles;
  • Karshan regarded the delivery drivers as self-employed contractors and paid them gross, without deduction of payroll taxes;
  • The drivers signed a contract which included some specific terms, such as:
    • The drivers were “independent contractors”.
    • The drivers were required to provide their own transport and insurance.
    • Payment to drivers was based on the number of deliveries undertaken.
    • Drivers were required to wear a uniform and carry logos on their cars.
    • No guarantee of a minimum number of deliveries or remuneration was given.
    • The drivers could engage a substitute provided that the substitute could undertake all of the contractual obligations of the driver.

The drivers completed an “availability sheet” about a week before a roster was drawn up, indicating availability for work and the roster would be drawn up by a store manager based on the availability sheets. The drivers could substitute another driver out of the pool if they were unavailable, and the substituted driver would be paid by Karshan for that shift.

The High Court upheld a previous determination of the Tax Appeals Commission that Domino’s delivery drivers were employees and not self-employed contractors. The key point from the judgement is that the determination of employment status is not a “one-size-fits-all” answer, and it must be determined by applying the concepts to the particular facts of each case.

Mutuality of obligation

This concept refers to whether there was an obligation on the company to offer work and a corresponding obligation on the part of the drivers to accept it. The existence of mutual obligations is fundamental to the existence of a contract of service.

In the Dominos Pizza case, the appellant argued that there was no ongoing obligation under the terms of the contract for it to provide work, nor for the drivers to accept it and hence there was no mutuality obligation in the engagement between it and the drivers. The drivers could decide what shifts they wanted to undertake, and there were no negative consequences for them if they opted not to.

However, the Court found that the appellant drew up a roster for drivers who had indicated that they were available to work in a particular week and once rostered there was a contract that retained mutual obligations. The drivers could only cancel a shift if they engaged a substitute, provided advance notification and worked out the remainder of the shifts as agreed. On this basis, the High Court agreed with the Tax Appeal Commission that mutual obligations existed between Karshan and the drivers.


This refers to whether the drivers had a genuine right of substitution. The right of a worker to provide a substitute to carry out work is central to the determination of whether an individual is engaged under a contract of service or a contract for services. An employer expects employees to attend work personally to carry out the responsibilities of their roles. This differs to contractors where there is “tremendous latitude” to decide whether to do the work personally or to send a competent assistant to do it instead. 

The Court noted the Tax Appeal Commissioner’s decision that: 

“the absence of an ability to genuinely subcontract is a factor which indicates that the drivers worked under contracts of service as opposed to contracts for services.”

In reaching the decision the Court noted that:

“the drivers did not hire assistants, rather one driver was replaced with another driver from the appellant’s pool of drivers. The substitute was paid by the appellant. A substitute was not a sub-contractor of the driver”. 

It was held that the drivers did not have a genuine right of substitution and the contract between the appellant and the drivers was one for personal service i.e. a contract of service rather than a contract for services. 

Employment Status of Medical Practitioners

Woman in a light pink blazer on the phone and writing on a notepad
This recent determination of the Tax Appeal Commissioners (117TACD2021) concerned the question of whether dentists, doctors and a dental hygienist engaged by the appellant were self-employed persons. The appellant was a sole trader operating a “clinic” providing dental and medical services. The appellant was not a qualified dentist or doctor. Dentists were engaged under a “Dental Associate Agreement” and the dental hygienist and gynecologists were engaged under written contracts. The appellant provided the use of premises, equipment, instruments including a functioning surgery for dentists and doctors. Nursing and reception staff were employed and remunerated by the appellant.

Payment made by patients were paid into the appellant’s clinic bank account and accounted for as turnover of the practice. Payments to the practitioners were treated as expenses of the practice. The practitioners were registered as self-employed, engaged their own accountants and filed their own tax returns. A monthly reconciliation of fees was undertaken based on agreed fee-sharing percentages. For PRSI and GMS patients, the patients provided details at the clinic reception and payment in relation to these patients came directly from the insurer to the practitioner.

The contracts between the appellant and the practitioners contained substitution clauses and stated that where the practitioners were required to correct faulty or substandard work, they were obliged to do so in their own time and cost. Practitioners were responsible for their own professional indemnity and public liability insurance costs.

Having examined the case facts, the Appeal Commissioners determined the following:

  • The appellant did not prove that there was no mutuality of obligation;
  • The appellant exercised no control over how the practitioners performed the work but did exercise control over all other aspects of the operation;
  • The work of the practitioners formed an integral part of the business;
  • The practitioners had no role in the management of the clinic and were not found to be in business on their own account;
  • There was minimal opportunity for the practitioners to profit from their work
  • The appellant held the stronger bargaining position
  • In practice, all work was performed personally by the practitioners

Taking all factors into consideration, the Appeal Commissioner determined that the practitioners were employees working under contracts of service.

Code of Practice on Determining Employment Status 

The most recent Code of Practice on Determining Employment Status was released in July 2021. The Code has been updated by an interdepartmental working group from the Department of Social Protection, Revenue and the Workplace Relations Commission. 

It is noted in the Code that it is intended to be a “living document” that will continue to be updated to reflect changes in the labour market, legislation and case law. It is proposed that the Code be placed on a statutory footing, with legislation to be brought forward this year. 

The purpose of the Code is to provide an understanding of employment status, taking into account labour market practices and developments in caselaw and legislation. 

The Code aims to benefit employers, employees, independent contractors and legal and HR professionals. 

Aerial view of a person typing on a laptop
The Code acknowledges that there is no single, clear definition of the terms “employed” or “self-employed” in Irish or EU law. It describes typical characteristics of employment and self-employment and it provides details on the key factors to be considered:

  • Mutuality of obligation
  • Substitution
  • The Enterprise Test
  • Integration
  • Control

The Code confirms that none of the factors is determinative on its own and when making a determination on an individual’s employment status, it is necessary to take all factors into account and to weigh them up.

The Code states that where misclassification occurs PRSI and tax must be paid for the full period concerned.

Final Comment 

Recent cases heard by the Tax Appeal Commission and Courts provide important guidance to approach analysing arrangements between businesses and workers for the purposes of determining individuals’ employment status. The employment landscape continues to evolve with growing number of individuals working in the so-called gig economy. It is advisable for employers to continually review payments made to contractors to ensure that they are being dealt with correctly for PAYE, PRSI and USC purposes. 

Sarah Fagan
Mairéad Hennessy

Mairéad is founder of Taxkey, a specialist practice providing virtual tax partner services to accountancy firms around Ireland.