The government has issued an updated Code of Practice on employment status, following extended controversy over so-called ‘bogus’ self-employment contracts.

According to the Department of Social Protection, the term ‘employment status’ refers to whether a worker is classified as either an employee or as being self-employed. This classification has implications for the rate of PRSI and tax that is owed. It also affects social welfare and employment rights protections that are afforded a worker, as well pension entitlements and other aspects of employment.

The department said that “employment status can be a complex area”, so the purpose of the code is to set out the key characteristics that are used to inform decisions on employment status, taking into account current labour market practices and developments in legislation and case law.

“These developments include, for example, new forms of work such as platform work and the gig economy. It is intended to be a ‘living document’, which will continue to be updated to reflect relevant changes into the future,” said a statement.

Social protection minister Heather Humphreys (pictured) added: “I share the concern expressed by many commentators over the years that employees should be correctly classified for social insurance, taxation and employment rights purposes.

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“We all want to ensure that workers’ rights and entitlements are protected and in particular that workers are not incorrectly, or falsely, classified as self-employed.

“I believe this updated code will prove to be of great benefit to many people, including employers, employees, independent contractors, legal, financial and HR professionals, statutory investigators, decision-makers and adjudicators.

“As previously indicated, I propose to place this code on a statutory footing and will bring forward legislation later this year.”

A person ensnared in a bogus service contract can lose many entitlements that an employee in a ‘contract of service’ accrues automatically on becoming employed. These include sick pay, holiday pay, the right to clear and fair disciplinary procedures, or social insurance contributions.

For example, an apparently self-employed contractor who is really and legally an ‘employee’ could find that when it comes to applying for the State Pension their total of PRSI contributions is insufficient, as many self-employed persons do not make voluntary contributions.

Equally, the value of holiday entitlements or holiday pay in lieu can amount to thousands of euros over the years, and such bogus contracts deprive the employee of these.

The minister pointed out that her department includes a section devoted to this area. Scope Section advises both workers and employers on employment versus self-employment, and will also provide a formal determination of employment status, if needed. The section can be contacted here.

Beyond that, an aggrieved worker who still feels that they are wrongly classified as ‘self-employed’ can formally appeal their status at the Social Welfare Appeals Office.

The misclassification of a worker as being self-employed when their terms and conditions mean that they are, in reality, employees, reduces contributions to the Social Insurance Fund and excludes workers from full PRSI and employment rights protections, the department explains.

It is a criminal offence under Section 252 of the Social Welfare Consolidation Act 2005 for an employer to knowingly and falsely classify a person as self-employed, with a penalty on conviction of up to three years’ imprisonment.

There is now also a dedicated team of Social Welfare inspectors who investigate employment arrangements in all sectors. Where misclassification occurs, PRSI and tax must be paid for the full period concerned. As there are no limits on the amount of retrospective PRSI or tax that may be due, the amounts owed can be substantial.

What that means for an employer is that all PRSI contributions due, both the employee’s and the employer’s, must be paid by the employer, along with any holiday pay or sick pay which the ‘contractor’ would have been due if properly classified as an employee.