Wednesday, 11 October 2006
Question 9: To ask the Minister for Enterprise, Trade and Employment if there is an indication that the strong growth in company registrations indicated for the first half of 2006 is part of a trend of false contracting, whereby employees are being required to register as companies and be employed as contractors in order for their employer to avoid many regulations, costs and duties involved in employing these people; the actions the Government is taking to end the practice of false contracting; if a survey or analysis has been undertaken by a Department or agency to investigate this practice; and if he will make a statement on the matter. [32167/06]
I share the Deputy's concern that individuals, whose status based on the application of the standard criteria may be more appropriate to that of an employee, may seek to register as self-employed in order to abdicate and avoid their rights and obligations under employment rights legislation. There are also, of course, tax and PRSI implications but these are matters for the Revenue Commissioners and the Department of Social and Family Affairs respectively.
Irish employment rights law makes a distinction between a contract of service, which applies to an employer-employee relationship, and a contract for service that applies in the case of an independent subcontractor. In effect, employment rights legislation does not apply to independent subcontractors with the exception of the Safety, Health and Welfare at Work Act 2005 and the Equality Act 1998. In most cases it will be clear whether an individual is employed or self-employed. However, the individual's employment status may not be clear in all cases.
Where there is doubt in relation to the employment status of an individual the relevant Departments and agencies will have regard to the code of practice for determining the employment or self-employment status of individuals. This code was drawn up and agreed in 2001 by the Revenue Commissioners, the Department of Social and Family Affairs, the Department of Enterprise, Trade and Employment, the Irish Congress of Trade Unions and the Irish Business and Employers Federation. A number of criteria are set out in the code for determining whether an individual is an employee or self-employed. These include whether the person is under the control or direction of another, owns his or her own business, supplies labour only, receives a fixed wage, is exposed to financial risk, assumes responsibility for investment and management, supplies materials for the job, can subcontract the work, works set hours or a given number of hours per week, month etc.
The criteria set out in the code are applied by this Department in making a determination in cases where an individual claims he or she is self-employed rather than an employee and, therefore, not responsible for complying with certain employment rights legislation. In the case of difficulties in deciding on the appropriate status of an individual or group, the Revenue Commissioners or the scope section of the Department of Social and Family Affairs may, following consideration of all the relevant facts, issue a written decision as to the status in a particular case. Such a decision is generally accepted by other Departments and agencies provided all relevant facts were given at the time, the correct legal principles have been applied and the circumstances remain the same. However, consensus on employment status may not be possible in all cases given the differences between the legislation across the employment rights, taxation and social welfare areas and the differing responsibilities and focuses of the enforcement agencies.
A major package of measures has been agreed by the parties to Towards 2016, the new social partnership agreement, to provide for enhanced public confidence in the system of compliance. This new compliance model seeks, among other matters, to maximise the effectiveness of the substantially increased compliance effort. New legislation will be published next year to provide for enhanced employment rights measures including the establishment of the office of director for employment rights compliance. The application of employment rights legislation to employees and the self-employed will be examined in the context of drawing up that legislation. The proposed legislation will also empower the labour inspectorate to join with the Department of Social and Family Affairs and the Revenue Commissioners to work together in joint investigation units. Such units will have a particular focus on the employment status of workers.
Finally, I note the Office of the Revenue Commissioners, as part of its recently launched construction industry project, will be reviewing the tax status of contractors and, in particular, whether individuals currently designated as self-employed should be regarded as employees and subject to PAYE and PRSI. I welcome this initiative.
I welcome the Minister of State's comprehensive reply, but I am somewhat concerned about the complacency at the top of his response, where it is suggested these are matters for the Department of Social and Family Affairs and the Revenue Commissioners. Yet he goes on to say that in Towards 2016, the social partners acting in a joined up way have recognised there is a need for co-operation between those two other actors as well as his own Department. Would he not recognise that given the increase in enhanced building activity and the shortage of available labour, along with anecdotal comments about the displacement of Irish workers by foreign nationals, that this abuse is continuing if not intensifying? The social partners have, in effect, recognised that a problem exists, having regard to the measures he has just outlined. In advance of the legislation next year, for which he probably will not have responsibility when he is on this side of the House, will the Minister of State initiate now on an interim basis exactly the type of co-operation that will be put on a statutory basis in 18 months time, since the problem is immediate?
Deputy Quinn may have misunderstood the distinction I drew between the roles of the various Departments. The Office of the Revenue Commissioners has responsibility for taxation matters as the Department of Social and Family Affairs has for PRSI matters. It is necessary in these instances to be clear as to who precisely has which responsibilities. In previous discussions in the House I indicated the intention of the Department to introduce legislation to empower the particular agencies and Department to co-operate in joint investigation units, which ultimately is the only manner in which this may successfully be implemented. All the evidence suggests that this is the case.
Of course, the Deputy is correct that the construction industry is particularly successful currently and is enjoying a period of growth, which undoubtedly will not continue if he is correct in his projection as regards the outcome of the general election. Nevertheless, there are issues here which are being dealt with in the most constructive manner possible. The Government is fully aware of the need to change the compliance model and intends to do that in conjunction with the social partners, in the context of Towards 2016.
The strong advice we have received is that legislation is required in order for the joint investigation units to successfully prosecute in cases that are brought to their attention. It would be folly for the Department to embark on attempted prosecutions in circumstances where the legislative base was not sufficiently strong enough to sustain them in the courts.