Joint Oireachtas Committee Bogus Self Employment
1 Feb 2019
Opening Statement by Patricia King,
General Secretary, Irish Congress of Trade Unions
1. Chairman, I would like to begin by thanking you and the other members of the Committee for the invitation to attend today’s hearing.
2. I am joined by Billy Wall, Chair of the Congress Construction Industry Committee, Karan O’Loughlin, Divisional Organiser with SIPTU, Seamus Dooley, National Secretary of the National Union of Journalists, and Brendan O’Hanlon, Assistant General Secretary of Fórsa.
3. The practice of mis-classifying workers as self employed has been a problem in Ireland for a number of years. When a worker is mis-classified there are very negative consequences for him or her, and a significant financial loss to the State. However, there are very significant benefits to the person who in normal circumstances would be his or her employer. This incentive has led a number of employers in a number of sectors of the economy seeking to mis-classify workers.
THE IMPACT OF BOGUS SELF-EMPLOYMENT
4. There are very negative and serious consequences for workers who are misclassified as self-employed. Because their employer is not required to pay employers’ PRSI, they are not entitled to the full range of social welfare benefits. They are also denied access to the suite of
employment rights which are available under Irish and European employment rights legislation.
5. There are also very serious consequences for the public finances and the Exchequer. In the following sections of this submission we will seek to quantify the loss of tax revenue that arises from workers being misclassified.
6. However, for the employer who forces a worker to work as self-employed there are very considerable financial benefits.
THE EXTENT OF THE PROBLEM
7. The Irish Congress of Trade Unions has been highlighting the problem of bogus self-employment for many years. We have encouraged Government and its agencies to act to resolve the issue. However, any action which has been taken has failed to correct the problem.
8. Over the last year, two significant reports have been issued which have sought to identify the extent of the problem.
9. In January 2018 the Department of Employment Affairs and Social Protection and the Department of Finance published a joint report entitled, The Use of Intermediary-Type Structures and Self- Employed Arrangements: Implications for Social Insurance and Tax Revenues. The Revenue Commissioners was also involved in the preparation of the report. This report showed that, in the period between 2007 and 2017, there was an increase in the level of self-employment in seven of the fourteen major sectors of the economy which make up the CSO NACE series. The report also highlighted the very high rate of self-employment in the construction sector when compared with other sectors.
10. The report also examined the potential loss to the Exchequer arising from the misclassification of workers as being self-employed. The following is a direct quote from the report:
“Although illustrative, the data does indicate the potential loss to the exchequer for a person engaged in work at a rate equivalent to the average industrial wage (€37,500) amounts to €5000 per annum …… this rises to €8000 per annum at a payment level of €60,000 and €15,000 per annum at a payment level of €100,000 per annum.”
11. The annual report of the Comptroller and Auditor General published in September 2018, also examined the issue of self-employment with a specific emphasis on PRSI contributions by the self-employed. As part of the report, the work of the Special Investigations Unit of the Department of Employment Affairs and Social Protection and the Joint Investigations Unit is highlighted. The report notes that in 2017 the Joint Investigations Unit initiated a campaign specifically focussed on the construction sector. As a result of this activity, €60.2 million was recovered by the Revenue Commissioners and nearly 500 subcontractors reclassified as employees.
12. The Comptroller and Auditor General concluded, that because there is no employer PRSI contributions for workers who are classified as self-employed, this creates an economic incentive for certain individuals to be improperly treated as self-employed. The report went on to make a number of recommendations including an increase in the level of compliance activity.
13. The CSO Labour Force Survey Employment Series shows the numbers of employees and number of self-employed people across a range of employment sectors. In particular, the number of self-employed people without any employees is detailed. For example, in quarter 2 of 2018 the percentage of people classified as self-employed with no employees in construction was 24.3% while in transportation and storage it was 14.8%. This compares with the 3.9% for industry in general.
14. The CSO data also shows that the number of workers classified as self-employed with no employees in construction has increased by over 6,000 in the year to quarter 2 of 2018.
15. The issue of bogus self-employment was recently discussed in the Oireachtas as part of the debate on Employment (Miscellaneous Provisions) Provisions Bill 2017. During the debate on Wednesday 19 December 2018, the Minister for Employment Affairs and Social Protection made the following comments;
“The one thing I can safely say is that we are all in agreement regarding the fact that there are people in this country who are made bogusly self-employed through no fault or acquiescence on their part.”
“I totally accept and appreciate that we have a difficulty in this country with people who are bogusly self-employed.”
16. Congress believes that the problem of bogus-self employment is a very significant problem and needs interventions at a number of levels. I want to take the following few minutes to go through some ideas that we have developed which, in our view, will go a significant amount of the way towards resolving the issue.
PREVENTING BOGUS SELF-EMPLOYMENT
17. Congress is calling for the following control measures to minimise the risk of and to detect the fraudulent misclassification of workers as self-employed.
18. Workers should only be permitted to register as self-employed if they satisfy agreed criteria.
In 2012, Revenue discontinued the old paper-based system for the registration of contractors and moved the process online. Congress is firmly of the belief that all semblance of effective monitoring and control disappeared with the move online. Under the new system, an employer/principal contractor can go online and designate any number of workers as self-employed, without challenge. Congress recommends that, at a minimum, workers without a taxation record no longer be permitted to register or be registered on
their behalf as self-employed unless they satisfy strict criteria laid down in an agreed code of practice.
19. Make principal contractors liable for employer PRSI for all subcontractors.
There is no employer contribution for class S PRSI contributors. In his report of September last year, the Comptroller and Auditor General notes: “This creates an economic incentive for certain individuals to be improperly treated as self-employed” (2018 p.264). Indeed, earlier in the year DEASP and the Department of Finance, in a joint review of bogus self-employment and the implications for social insurance and tax revenues, recommended reducing the differentials in social insurance rates in order to reduce the economic incentive (January 2018 p.26). Congress is encouraged by comments by Minister Doherty in interview with the Irish Times earlier this month in which she signalled her willingness to introduce legislation for a new so-called ‘contractor’s tax’ in line with international best practice, whereby contractors are made liable for employer PRSI on behalf of workers they contract to provide work or services. Congress looks forward to engaging constructively with the Minister and her officials on the operational and design features of this important amendment to PRSI.
20. Workplace Relations Committee / Labour Courts replace the Department’s Scope Section in reviewing reported misclassifications.
It is the firm view of Congress that the safeguards in place for workers incorrectly classified as self-employed are not timely or sufficiently robust. Requests to have an employment investigated to ensure that the correct class of PRSI is applied are currently dealt with by the Scope Section of DEASP. Congress calls for the reviewing of reported misclassifications to be moved to the WRC or Labour Court.
21. Strengthen Revenue’s capacity for PRSI non-compliance interventions.
Both the Department and Revenue engage in compliance activity in relation to PRSI. Targeted investigations recently undertaken in the construction sector by the two detected a significant incidence of misclassification. Congress calls for the necessary resources to be made available to increase the level of compliance activity.
22. Backdating unpaid PRSI in full from employers found to have misclassified workers.
A determination finding that a worker’s employment status has been incorrectly classified should always result in PRSI contributions being backdated in full. A universal cap or case-by-case limit on retrospective payments not only serves to undermine it as a deterrent to rogue employers but it leaves the worker’s social insurance record unnecessarily incomplete.
23. Legislate to clearly define the term ‘worker/employee’.
The terms ‘worker’ and ‘employee’ are not defined in Irish employment law. This results in ambiguity on how to determine whether to engage workers on a contract for service or directly as employees, increasing the risk of misclassification. While a common understanding is currently being negotiated at European level, Congress calls for domestic legislation that clearly defines the terms be introduced without delay.
24. We have included, as an attachment to this submission, a one-page document which seeks to summarise the points made in this submission. I would like to thank you for your attention and we are happy to take any questions.