Ms Patricia King:

I thank the Chairman and committee members for the invitation to attend today’s hearing. I am joined by Mr. Billy Wall, chair of the congress construction industry committee and general secretary of the Operative Plasterers and Allied Trades Society of Ireland, OPATSI. Unfortunately, Ms Karan O’Loughlin could not be with us today, but Mr. Seamus Dooley, national secretary of the National Union of Journalists, and Mr. Brendan O’Hanlon of Fórsa are with us.

The practice of misclassifying workers as self-employed has been a problem in Ireland for a number of years. When a worker is misclassified, 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 to number of employers in a number of sectors of the economy seeking to misclassify workers.

There are very negative and serious consequences for workers who are misclassified as self-employed. Because their employer is not required to pay employer's 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. 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. However, for the employer who forces a worker to work as self-employed, there are very considerable financial benefits.

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. Over the past year, two significant reports have been issued which have sought to identify the extent of the problem. 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 were 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 14 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. 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.

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, JIU, is highlighted. The report notes that, in 2017, the JIU initiated a campaign specifically focused 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. The Comptroller and Auditor General concluded that because there is no employer PRSI contribution 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.

The CSO labour force survey employment series shows the number 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 3.9% for industry in general. The CSO data also shows that the number of workers classified as self-employed with no employees in construction has increased by more than 6,000 in the year to quarter 2 of 2018.

The issue of bogus self-employment was recently discussed in the Oireachtas as part of the debate on the Employment (Miscellaneous 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." She also stated: "I totally accept and appreciate that we have a difficulty in this country with people who are bogusly self-employed." Congress believes that the problem of bogus-self employment is a very significant one and needs interventions at a number of levels.

I want next to go through some ideas that we have developed which, in our view, will go a significant way towards resolving the issue. Congress is calling for the following control measures to minimise risk and detect the fraudulent misclassification of workers as self-employed. 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 or 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.

Another measure we recommend is to 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 noted, "This creates an economic incentive for certain individuals to be improperly treated as self-employed". Indeed, earlier in the year the Department of Employment Affairs and Social Protection 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. Congress is encouraged by comments by the Minister, Deputy Regina Doherty, in an interview with The Irish Timesearlier 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.

The Workplace Relations Committee, WRC, and Labour Court should 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 the correct class of PRSI is applied are currently dealt with by the scope section of the Department of Employment Affairs and Social Protection. Congress calls for the reviewing of reported misclassifications to be moved to the WRC or Labour Court.

Revenue’s capacity for PRSI non-compliance interventions should be strengthened. 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.

Unpaid PRSI should be backdated in full from employers found to have misclassified workers and 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, it also leaves the worker’s social insurance record unnecessarily incomplete.

We should legislate to clearly define the terms "worker" and "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.

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 members for their attention and we are happy to take questions.