Wednesday, 28 February 2018
Protection of Employment (Measures to Counter False Self-Employment) Bill 2018: Second Stage
I move: "That the Bill be now read a Second Time."
I welcome the Minister of State, Deputy Finian McGrath, to the House. Employment policy is at the heart of public policy. There are, of course, core issues to do with pay, such as how do we get weaker growth in take home pay and how do we best ensure wage growth is consistent with sustainable economic growth and economic competitiveness. However, employment policy is about much more than simply pay. It is about decency, the dignity of work, fairness and harmonious industrial relations. Employment policy is now faced with a direct threat. We can legislate for issues such as sectoral employment, sectoral orders, collective bargaining and minimum wages, but what if employers claim those in their workforce are not their employees? What if they argue they have a workforce of self-employed, independent contractors only? From the Government's viewpoint, what are we to do when the employers who assert this reduce our tax and PRSI revenues when we must increase welfare spend, and so reduce the resources available to the State for expenditure on essential public services?
Any discussion on employment policy now must take account of the significant changes we have seen to the complexion of the labour force in recent years. We know atypical employment is growing. It is not always easy to establish the status of self-employed individuals. There are genuine undertakings on the one hand and disguised employees on the other. The reality is unscrupulous employers can and do take advantage of this confusion and this is to the detriment of all of us in society. We are told self-employment is a free choice, an opportunity to respond flexibly and profitably to the need for restructuring, to reduce the direct and indirect costs of labour and to apply resources more flexibly. It is true many thousands of self-employed people are skilled professionals or craftspeople who work for multiple customers using their own tools and initiatives and deploy their talents and entrepreneurial abilities to the work they do. However, there is another growing and very insidious reality. Among the self-employed there are also some very low-skilled individuals who work as day labourers for a single employer. They are sometimes called dependent independent contractors. Self-employment can be and is being, as we speak, imposed on the most vulnerable in our society, namely, the low paid and those with little or no social protection. This cohort deserves our attention and legislative intervention.
The State, particularly the welfare state, ends up paying the bill when employers discover so-called independent contracting as a way of escaping their social insurance obligations. Where businesses use a self-employment fig leaf to evade their obligations as employers, we must be vigilant and we must counteract what is, in fact, a downright fraud on the Exchequer. The Competition (Amendment) Act 2017, which originated as a Labour Party initiative developed originally by my colleague, Senator Bacik, means that for the first time in Irish statute law there is a test to establish false self-employment, but it does so only in the relatively narrow confines of trade union membership and the right to join a trade union for the purposes of collective bargaining. What I propose in this legislation is that we build on the Act passed by the Houses last year and apply the false self-employment test across the board in our employment protection law. In other words, these new laws would apply to the general population of workers.
There is, of course, no single test to determine self-employment, but essentially the question revolves around whether a person runs a business on his or her own account. The matters to be taken into account in deciding whether people are truly in business on their own account include whether they do not decide independently their conduct in the market but are entirely dependent on their principal, whether they do not bear any of the financial or commercial risks associated with the principal's activities and whether they merely operate as auxiliaries within the principal's undertaking.
The Revenue Commissioners and the scope section of the Department of Employment Affairs and Social Protection apply these common law rules at present, albeit, it seems, to the satisfaction of few. The scope section makes statutory decisions on the insurability of employment under the social welfare Acts, but the Department told a media outlet last week it has no figures recording the number of cases involving bogus self-employment. I find this quite extraordinary. What we need to be clear about is that the question of whether an individual is engaged under either a contract of service or a contract for services is a question of law, regardless of how the parties choose to describe themselves at any given moment in time. There can be no question of opting into or out of our employment protection laws.
Bogus self-employment in the construction industry, in particular, has increased at an alarming rate in the past decade, with very real consequences, as so many workers discovered to their cost during the economic crash. Workers suffered not just the loss of employment protections but of social insurance cover also. The citizens of the State, who depend on the ability of the State to invest in public services, were deprived of substantial revenue in the form of lost PRSI contributions, taxes forgone and public moneys lost to what we might describe as unscrupulous contractors engaged in de factofraud.
I would not take too much comfort from the recent ESRI study on this matter. It was based on questions asked in the quarterly national household survey, which involves workers being asked to self-declare whether they were employees or self-employed. This is not an adequate way, as far as I am concerned, of gathering the information we need to fully inform public policy-making in this country. It also seems clear to me from reading its report that the interdepartmental working group, which was established in July 2015 to examine the tax and PRSI implications of bogus self-employment, had riding instructions to adapt the phenomenon of bogus self-employment and the State response to it rather than counteract it.
We have introduced this legislation because a mere tinkering around the edges with this issue will not fix the problem. Our Bill would provide a holistic approach to the determination and classification of employment status and a set of clear rules in law. The Bill defines, in section 2, what an employment relationship is and makes it clear an employment relationship may exist in cases where: the individual is also an employee of other persons; the individual is also, in respect of other work being done by him or her, self-employed; the individual works as an outworker or teleworker; the individual does part-time work, temporary work, seasonal work or vocational work; remuneration of the individual is calculated by reference to the amount of work actually done; and where the hours of work or remuneration of the individual are otherwise uncertain. The exception to this general rule is where someone is genuinely in business on his or her own account and is providing a contracted service to a customer or client.
Section 3 will confirm employment status is a status relationship defined in law and is not purely the subject of a personal agreement. In other words, someone cannot contract out of Irish employment law.
The use of so-called personal services companies to shield bogus self-employment or disguise what is an employment relationship is tackled in section 5.
Section 6 would apply our tax avoidance laws to bogus self-employment so that an employer who decides to deliberately misclassify the status of an employee would be considered to be a tax and PRSI cheat and have the same penalties applied to him or her as is the case for other tax defaulters.
The Bill provides a mechanism for the resolution by the Workplace Relations Commission of disputes as to whether a work contract gives rise to an employment relationship. The Bill proposes at long last to define and regulate the phenomenon this country has been grappling with for almost half a century. I want to make it clear I do not stand here before the Minister of State as a representative of a party or movement of Luddites. As I have said, we all know about the growth of atypical employment but there is no turning back the clock and we must adapt and get used to more flexible ways of working. The point is we should not preside over a situation where flexibility is simply something that is expected from one side and not the other, and where that dynamic is, unfortunately, favouring employers over employees and where there is little balance to speak of.
This does not mean we must recognise quite spurious claims that some people are not really employees and that they are really independent contractors or self-employed entrepreneurs. The basic inequality of bargaining between employers and workers forces these workers into poor rates of pay combined with low and uncertain hours, little structured training and limited career progression. The Labour Party's priorities and my priorities are all about making sure the benefits of economic growth are fairly shared across society. I hope this is a principle the Minister of State shares also. We have no interest in jobs at any price or in the spread of casual labour at the lowest wages. We reject the false promises of an economic recovery that is fuelled by a ruthless race to the bottom and I hope other Members of this House would do the same. We also need to counter the common misconception, as common now in the newsroom and the lecture hall as on the construction site, that parties are free to choose whether to provide services, as employees are self-employed, and that they can in some way design their contracts accordingly. It is not the case. We need to reassert that the test of employment status is a matter of law, and is not determined by the label attached to the relationship by the parties.
Needless to say, it is not my purpose or the purpose of the Bill to bring individuals who are genuinely self-employed into the employee framework, and we have made that very clear. Genuine entrepreneurship and self-employment should be supported and encouraged in a dynamic market economy like ours. In its early months, the current Dáil unanimously accepted a motion from the Labour Party on workers' rights. That motion outlined a programme of work to tackle abusive terms and conditions of employment, low pay, insecure hours, forced and bogus self-employment and other issues. Passing this Bill, as we hope to do in this House this afternoon, will give some practical effect and reality to that motion. It will be a practical and urgent step to tackle the phenomenon of bogus self-employment and to bring frankly perverse gig economy-type abuses to an end. It will be, in my opinion, the biggest single improvement to employment law in this country since we joined the then European Economic Community in 1972. I hope that this House sees fit to back this warranted legislation, which is absolutely necessary to protect some of the most vulnerable workers in this society.
I thank the Minister of State for coming before the House to take this debate. This must be very close to his own heart. I formally second Senator Nash's Bill.
The Minister of State is probably engaged in several conversations every day, every week and every month. He must hear about how young people, and not-so-young people, are suffering out there in the market. They are being forced into so-called self-employment, which is no more self-employment than is useful work like bin collection, lecturing in university or teaching. This bogus self-employment has been like a plague on society. It undermines people's rights to pensions, holidays and sick pay. It denies the State revenue from pay-related social insurance, PRSI, contributions, revenue which helps to ensure State services. Basically, it defrauds workers and the State. Bogus self-employment cheats us all, and that is very clear.
It is a race to the bottom. Only last week, I was talking to parents who were asking what the future held for their sons and daughters. They wondered how they would get a mortgage. Their children are tied into so-called self-employment. They might get 20 or 30 hours a week or they might get none at all because they are not deemed to be employed. However, they are carrying out a job as real as any in society.
We are not trying to roll back the clock. Enormous sacrifices were made by the citizens of this State during the recession and the period of austerity. Those same citizens are now being exploited. We have a responsibility in this House and in the Dáil to ensure that we build a legislative framework to support and protect workers.
I was struck in 2017 when RTÉ's "Drivetime" covered bogus self-employment. Its producers felt it was a responsibility, because they were covering bogus self-employment, that the first employer to be examined should be RTÉ itself. A statement was issued by at the time by RTÉ and the "Drivetime" journalist commented that the broadcaster was no better or worse than other media employers. Semi-State companies come before the Oireachtas to seek the support of taxpayers' money and for a statement like that to be issued is totally unacceptable. Is one saying that the cameraman who works on the plinth is not entitled to security of employment? If we do not move this Bill quickly through both Houses, we are saying as much to that very man and his family. He has no security, he may not have a pension and he may have absolutely no holiday rights. A blind eye was turned to this practice when it was limited to the construction sector but it goes far beyond that. It is now evident in IT. It is used by the very large multinationals that operate not too far from this location in the city, whose names I will not mention. Those young people working five or six days a week cannot get mortgages because they are deemed to be self-employed and do not have a regular income. They cannot move on with their lives, form families or purchase a house, all because they are deemed to be self-employed, though there is no truth to this. Bogus self-employment is as bad as if-and-when contracts, whereby a worker might have 35 hours one week, 20 hours the next week and five hours the week after that. How can one build a family, a society or a community if workers are treated in this manner?
I ask the Minister of State to make it his mission to ensure this legislation travels through both Houses as quickly as possible. I call on him to ensure that the families that make up his electorate in Clontarf and elsewhere have a future. I call on him to ensure they will not be duped into bogus self-employment. The current Taoiseach, when he was Minister for Social Protection, was photographed with a very large sign saying "Welfare cheats cheat us all". Bogus self-employment cheats us much more severely. It is a much worse crucifix on working people, who have very little future because of this plague, which affects many families across the country.
I will keep it brief. I ask the Minister of State to make sure that families in Clontarf and Marino are equally represented at the Cabinet table, to make sure their sons and daughters have a future in this country and to clamp down on the plague of bogus self-employment.
I am covering for my colleague, Senator Butler, who is unable to be present because of the snow in his area. Apparently there are eight inches of snow around Athboy in County Meath today. I have not done the level or research that I would do on an issue in my own area, but nonetheless I have had a look at it over the past couple of hours. I commend Senators Nash and Humphreys and the Labour group on raising this issue and on putting this Bill forward. No one could possibly disagree with the sentiment and intention of the Bill. At its heart is an effort to do away with inequality and there are seriously well-intentioned motives behind this Bill. It seeks to define in law the employment relationship and the relevant tests and to apply that employment status to every enactment unless the enactment has a contrary intention. It seeks to define false self-employment and provides that disputes as to whether an employment relationship exists be referred to the director general of the Workplace Relations Commission. The Bill empowers the Revenue Commissioners to determine that arrangements calculated to misrepresent any work or service as being executed under a contract for services rather than a contract of service is a tax avoidance transaction, and provides that PRSI in this instance should be treated as tax for that purpose.
It will be for the Minister to respond for the Government as such but it is not immediately clear to me that the Bill will provide any additional protection or improve the current legal basis for determining employment status. Perhaps pre-legislative scrutiny would be a good idea where this Bill is concerned, as with any other Bill.The Bill appears to describe much of what is already covered in existing legislation and case law, drawing substantially from current codes of practice. The existing key test to define employment status properly has developed, as Senator Nash is no doubt aware, from a significant body of case law. The question of whether an individual is engaged under either a contract of service or a contract for services is a question of fact and general law. The Government has, in a report, already reported on the use of intermediary-type structures and self-employment arrangements, and the implications of that for social welfare and tax revenues. That was published in January of this year. It sets out a number of proposals, and no doubt the Minister of State will go into those. I do not wish, especially because of the conditions outside, to prolong my contribution but there is no doubt that that will be part of the Minister of State's response.
There is certainly a question as to whether there is a significant problem to be addressed. The existing mechanisms for dealing with false self-employment, including the Workplace Relations Commission, WRC, and scope section, do not encounter significant levels of false self-employment. That may be a result of the topic that we are talking about. It may suggest that the prevalence of false self-employment is overstated or that people are not reporting it. We need to get to the bottom of those facts. The data from the Central Statistics Office, CSO, quarterly national household survey, record 312,000 individuals as self-employed in 2017, or 15% of total employment. This is consistent with the average levels of self-employment within the EU. The evidence does not show an issue. We have no alternative but to use the CSO figures for this type of statistic. It is still a very important area, which I think the Senator quite rightly raises. I will allow the Minister of State to respond to it, but I commend the Senator on the general thrust of the Bill, which I think is very well-intentioned, and it is an important area to look at.
Apart from Senator Gavan and Senator Nash himself, I think the rest of us are all based in Dublin. At the same time, I do not want to prolong the debate too much. I will let Senator Nash listen to my contribution. It is important that this has been brought up, and I thank Senator Nash for doing so. It is important for those who are a little worried about the idea of it, such as employer organisations, that the Bill contains measures to counter false self-employment, that it is about bogus self-employment, and that it is not about trying to rule out self-employment, get rid of people or make it more difficult for self-employed people. It is about the position where people are being asked to make themselves self-employed but the power dynamic between the person paying for the service and person providing the service is much more on the side of the person paying. That will always be the case to a certain extent. He who pays the piper calls the tune to a certain extent. That said, it is about the flexibility about when a person turns up, how he or she turns up, if that person can go missing for three days and come in when it suits him or her to do the job, or if that person is doing a certain number of hours every week. When I was doing my accountancy exams a long time ago, we talked about contracts of service compared with contracts for service. If a person had a contract of service, he or she was an employee, was supposed to turn up for certain hours and was supposed do whatever was asked to be done in the job specification, contract and so on. A self-employed person would come along and do a task, perhaps very frequently, but it would be on that person's terms more than it would be on the terms of the person paying for it. There is vagueness there and will always be vagueness there.
While this Bill is not in my area of expertise or portfolio, I read the explanatory memorandum, have notes on it and am familiar with the topic. There are people who will have worked on construction sites and who will have been there all the time, as tilers, carpenters or plumbers. They will not have been fellows who turned up, did a particular task and left. They will have been there full-time, all day, every day, for months on end, but they will not have had that protection if they were sick. As people have pointed out, with the average industrial wage being approximately €37,500, there may be approximately a €5,000 difference between what the State gets from self-employed people and others, rising to approximately €8,000 for somebody on €60,000 a year. I do not think the Social Insurance Fund should be called PRSI any more because it is not just related to pay any more but also to dividends, interest, rental income and anything else one might have. It is based on a person's entire income. We will discuss class K PRSI some other day, which is a meaningless status with regard to getting any pay related social insurance. My party supports this Bill because it is about tackling bogus self-employment. It is trying to tackle people who are put in a position where they are on somebody else's terms, to which they must sign up and for which they do not get benefits if they are sick or other things such as holiday pay. Senator Humphreys made a point about RTÉ. The top ten highest paid people who work for RTÉ are nearly all not employees. I do not think they are the people we are worried about with regard to bogus self-employment, but there is probably a lot of employer's PRSI not being paid on those various contracts. While I do not think those are the people we are worried about, who are almost working full-time, if there is discussion about rules for bogus self-employment, they should probably cover such areas.
I went through the explanatory memorandum. Senator Nash spoke for approximately 12 minutes on it and Senator Humphreys for another five or six on top of it. I agree with it, we agree with it, and I think the Minister of State is allowing it to go to Committee Stage. I think we should let it go to Committee Stage. I am sure there are things to be refined in the drafting and so on, like on Committee Stage of all Bills. I think we have probably passed the boat for pre-legislative scrutiny by now since we are in the House with the Bill. Let it go to Committee Stage. I will not delay it. We support the thrust of the Bill.
I assure the Acting Chairman that I will not take eight minutes either. I thank the Minister of State for coming to the House. I would not dream to presume to tell him how to deal with workers in his own constituency. I know he is capable of representing their interests. I thank Senator Nash and the Labour Party for bringing this forward. If I have any criticism of it, it is that it did not come forward ten or 20 years ago because the exploitation of workers has been going on for a long time in this country. I recently had a call from a builder's labourer. That is what he described himself as. After his second week of work, he was approached by his employer and told that he was self-employed. I hope Senator Nash is trying to ensure that this Bill does away with that. Not only are unfortunate people left in a situation where they are getting an income which includes a PRSI and tax liability, they finish up in a situation where they are in debt to Revenue and to social welfare because they do not naturally hand the money over but take it as income, because that is what they think it is. I have huge sympathy for those people but it is not just those people in construction. This bogus self-employment has been going on for some time in the corporate sector and multinational sector where employment agencies were engaged to recruit employees for certain manufacturing companies, particularly in the IT industry. The employee, or those who thought they were working for these companies, which I will not name, actually had no rights with the company. They were paying their PAYE and PRSI but had no rights with the company that they were allegedly working for.
I will not delay the House on this other than to say that I am delighted that the Labour Party has brought the Bill forward. I sincerely hope, as Senator Nash hopes, that it moves through the Houses quickly and finds its way into law. We should, as part of this, look to ourselves in the public sector.
My colleague, Senator Horkan, referred to class K PRSI.We brought in terms and conditions of employment in this very House which affect people's pensions and we did not take the time to examine what they were doing. We applied crude rules across the board and this has happened in several parts of the public service. With regard to abatement, ordinary individuals who retired from one part of the service and moved into another part of it cannot draw any element of their pension. I am one of them. It is okay if a person is on €65,000 a year but not if he or she is not. We need to look at how we treat employees in the public service as much as how we treat them in the private sector.
I have been in contact with the Minister's office regarding bogus self-employment and the response was amazingly fast. She showed huge commitment to rooting out bogus self-employment and I congratulate her on that. She did not sit about. As soon as she received my letter, she acted on it straight away and I thank her for that. I hope the Bill completes its passage through the House quickly.
I welcome the Minister of State to the House. I also welcome the Bill and I commend my colleagues in the Labour Party on addressing this issue. I spent years as a trade union official on construction sites and I witnessed first hand the growth of bogus self-employment and the horrendous impact it has on working people. Bogus self-employment is tax fraud. It is yet another loophole in our tax system, which employers can exploit to avoid paying their fair share of tax. Not only do employers evade tax through bogus self-employment, they also exploit their workers by not providing them with adequate employment protections. Workers do not get holiday pay, sick pay, insurance stamps or private pension entitlements, and their State pension is also affected. The issue has been going on for decades in plain sight and it is now escalating and spreading to different sectors of our economy. Why has the State permitted it to happen for so long? Why has the State been willing to forgo tens of millions of euro each year in uncollected PRSI and PAYE?
Bogus self-employment is corruption at its core. It is the exploitation of workers, their families and the taxpayer. A total of €80 million per year, according to ICTU and TASC calculations, is lost in taxation, which equates to €800 million over the past decade. When the disgraceful social welfare cheats campaign introduced by the then Minister for Social Protection, Deputy Varadkar, last year to win over his neoliberal base in Fine Gael is considered, we can see where the Government is willing to tackle corruption and where it is willing to turn a blind eye. Bogus self-employment is the fraud that cheats us all. It cheats the worker, the worker's family and the taxpayer. However, a call free phone line has not been opened for this type of fraud. Worse than turning a blind eye, the previous Government in 2012 made it easier for businesses to engage in bogus self-employment. In 2012, the State made the decision to make two changes: first, to move the RCT system online, and second, to give the employer the responsibility to decide how the worker was classified. This gave the employer the power, at the click of a mouse, purposefully to misclassify a worker, without the active consent of that worker, whereas prior to these changes he or she had proactively to complete paperwork for tax purposes. The State essentially made it easier for employers to rip off the taxpayer. It also left the worker in a difficult position. No active consent was necessary to be classified as self-employed but workers would now have to go out of their way to make an issue of being misclassified and most likely lose their jobs in the process.
The statistical evidence is that in the construction industry, for example, the proportion of those self-employed increased from 25% in 2006 to 38% in 2015 - a figure which peaked at 40% in 2013. Evidence from interviews carried out by TASC shows that the offer of employment is often conditional on accepting a status as self-employed. We therefore have to laugh when we hear someone like Mr. Tom Parlon, director general of the Construction Industry Federation, say that he thinks claims of bogus self-employment are exaggerated. His reasoning for so many workers in the construction industry being classified as self-employed is they are specialist workers. Is he really trying to say that 40% of construction workers are specialist entrepreneurial bricklayers? This nonsense is being spread while unions such as OPATSI, BATU and SIPTU, who represent these workers, are telling us that bogus self-employment destroys people's lives. A report by the CIF highlighted that between 2008 and 2014, more than 1,000 builders committed suicide. We can imagine being a builder when the crash in 2008 happened, having no pension or social welfare entitlements to fall back upon as his or her employer had not been paying his or her insurance stamps. We can only imagine the stress and pressure that would put on someone. This type of employment is spreading to new sectors of the economy such as the services sector, Deliveroo, Uber, English language teachers, IT services and third level education providers. Workers in all these sectors have to accept these conditions.
I welcome the content of this Bill, which has been well drafted. Section 3 takes a practical, holistic view of the relationship between the employer and the worker. This will give those asked to adjudicate on these matters the ability to do so in a real world scenario rather than simply on the wording of the contract. Section 6 gives the Revenue Commissioners the scope to investigate this issue. That is welcome because investigations have not worked as well as they should have to date. The legislation places the Social Insurance Fund under the remit of the Revenue for the purposes of tax. Currently, social fund fraud issues come under the remit of the Department of Employment Affairs and Social Protection and, frankly, this arrangement is just not working. Giving Revenue a role has the potential to be a game changer. The legislation could be tightened and nuanced in some ways, but it is well-thought-out and deserves the support of all parties. I appeal to the Minister and colleagues to work together on this. Let us support the Bill on Second Stage and tighten it up on Committee Stage. We must make sure it moves on to Committee Stage quickly. There is too much as stake for too many people and, indeed, for our economic well-being to leave the legislation to rest before taking Committee Stage. If we are serious about the issue and about caring for working people, then the Bill should be taken quickly with the support of all parties.
I very much support the Bill. I compliment Senator Nash and the Labour Party on effectively putting forward constructive proposals over recent months. The Competition (Amendment) Act 2017 was recognised by the then Minister, Deputy Mitchell O'Connor, as being positive and she worked with all parties in the House to pass this positive contribution to employment law. A set of measures and Bills have been put forward by the Labour Party, all of which have been carefully drafted. They are thoughtful and, in most cases, they are ready to go, though there is always an openness to amendment on Committee Stage. I also acknowledge Senator Gavan's contribution in this regard because Sinn Féin has put forward proposals and worked with the Labour Party and others on them. There has been a positive dynamic in the House to address employment measures that recognise the contemporary challenges we face in respect of employment, security and the intersection with the social welfare system, which I am more aware of now as a member of the Joint Committee on Employment Affairs and Social Protection. I acknowledge the arrival of the Minister.
The Bill is important because bogus self-employment is not simply something that causes great loss and difficulty for individuals. Individuals who give what they have in their employment, including their energy and time, find themselves deprived of the life chances that go with a life's work. They never find themselves in a position, for example, where they are secure enough to take out a mortgage and they cannot take out private pensions. They are often denied such pensions because of gaps in their employment. The Minister will be familiar with that. While it is a separate discussion, there is a big concern with the total contributions approach that many people who laboured for years will have large gaps in their pension contributions because of periods of self-employment that were forced on them.This has consequences for individuals in terms of their life chances, security, family and ability to progress. People who are constantly on self-employment contracts do not receive acknowledgement of their work or secure progression in their employment as they do not benefit from payscales and increases in pay in recognition of experience. They do not enjoy the normal aspects of a working life that allow people to build a ladder for themselves and their families.
Bogus self-employment also has negative consequences for wider society. As previous speakers noted, this is a form of tax evasion by certain employers, which hollows out the tax base and undermines the employment relations mechanisms. Sectoral employment orders and joint labour committees, which have been among the most effective means of ensuring employees in certain sectors receive decent pay and conditions, do not apply to the self-employed. The mechanisms and standards introduced for entire sectors and which serve employers, employees and the wider public good are hollowed out when large numbers of individuals working in these sectors are removed from them by being pressed into becoming bogus self-employed.
The Bill is clear in this regard. I was struck by the reference in section 2 providing that an employment relationship exists in respect of any "contract whereby the individual agrees with a person personally to execute any work or service". In these circumstances, self-employed persons and individual contractors do not have an army of fellow employees who they are bringing into a contract. On the contrary, this is a person who is stating he or she is personally executing certain work. The original definition of self-employment used by the Revenue Commissioners made clear that what the self-employed person brings is his or her labour. Adding measures that he or she is expected to bring his or her own uniform and equipment has blurred the line. At the heart of the matter is that a person working is bringing his or her labour to an employment. The idea of a contract being agreed with a "person personally" is very good.
I acknowledge that Senator Noone spoke about circumstances in which complaints are made and in that regard, section 8 deals with disputes. However, as previous speakers noted, few self-employed persons will take a case challenging an employer's classification of him or her as self-employed because the financial and administrative strength is balanced in favour of employers. The Bill proposes not only to deal with disputes but also to have the State assume responsibility for objectively ensuring that standards apply by recognising what a state of employment is.
The Minister knows what the consequences of bogus self-employment are for the social protection system, specifically in respect of those who have gaps in their employment record, not only in terms of pension costs but also in terms of sick pay and families relying on family income supplement payments. The State incurs a significant cost both in social protection costs and revenue foregone.
The Bill should proceed quickly to Committee Stage to give Senators an opportunity to amend it. My colleagues in the Dáil who are members of the Select Committee on Employment Affairs and Social Protection will also amend it when it comes before the committee. We are ready to move forward with the Bill and I commend it to the House.
It is always a pleasure to come to the House and I welcome this opportunity to discuss the issue of false and bogus self-employment. I have read carefully the text of the Bill tabled by Senator Nash and others and I genuinely appreciate the intention behind it. False self-employment arises where an employer wrongly treats a worker as an independent contractor to avoid tax and social insurance contributions and other rights which attach to employment.
If I may, I will discuss briefly the main features of the Bill. The Bill aims to define in law the employment relationship and relevant tests of employment and apply this employment status to every enactment unless the enactment has a contrary intention. It also seeks to give a definition of false self-employment. While there are a number of definitions, it seeks to firm up one definition and thereby have potentially only one definition. It also provides that disputes as to whether an employment relationship exists be referred to the director general of the Workplace Relations Commission. It empowers the Revenue Commissioners to determine that arrangements calculated to misrepresent any work or service as being executed under a contract for services, rather than a contract of service, is a tax avoidance transaction and that PRSI in such cases will be treated as tax for that purpose.
The Government will support measures that bring genuine protection for vulnerable workers. It is not clear, however, precisely how this Bill will provide any additional protections for workers or improve the current legal basis for determining employment status. It would be appropriate, therefore, to have further scrutiny of the legislation in an appropriate forum, possibly a committee.
The Bill appears to describe much of what is already covered in existing legislation and case law. It draws substantially on the current code of practice for determining employment and self-employment, without proposing any real additional safeguards or supports for workers. The existing key tests to properly define employment status have developed from a significant body of case law. The question of whether an individual is engaged under a contract of service or a contract for services is a question of fact and general law. Regardless of how the parties may describe themselves, all the possible factors that bear on the relationship between the parties, including written, oral and implied details, must be examined and given their proper weight and a judgment must be made on their overall effect. The courts have been clear that the reality of the employment relationship in all its aspects has to be considered. In this light, I have some concerns that attempting to enshrine a list of tests in legislation could have the effect of producing a checklist, rather than considering the full working relationship.
While the Bill describes much of what is already covered in existing legislation and case law, it does not appear to include the most significant employment test, which is known as the mutuality of obligations test. Based on current case law, for any contract of employment to exist the employer must be obliged to provide work and pay and the employee must be obliged to accept that work and pay. The courts have pointed to this as being an essential element of an employment contract.
The Government recently published a report under the title, The Use of Intermediary-type Structures and Self-employment Arrangements: Implications for Social Insurance and Tax Revenues, which is a bit of a mouthful. The report, which was brought to Cabinet some weeks ago, followed a lengthy public consultation which received submissions from interested parties, including employers, trade unions, professional bodies and, most important, individuals. The report set out a number of proposals, including exploring further legislative options to treat nominally self-employed workers who are dependent on a single employer as PRSI class A contributors, with the employer PRSI contribution paid by the company that uses the employee's services.
Section 5 of the Bill addresses the same issue on employment via intermediaries. The Bill does not seem to recognise that by no means all forms of intermediary employment are false self-employment. The working group that considered this issue purposely avoided the requirement that an individual would have to be deemed to be an employee. It advocated instead that where the characteristics of an employment relationship exist, the end user would be required to operate PAYE - income tax, PRSI and USC deductions - even though the individual may be self-employed. This is a fundamental difference in approach which would allow for the retention of the flexibility available under existing contract arrangements, while providing additional protections to self-employed contractors who are economically dependent on a single employer through a single contract.
The Bill's relationship with existing legislation, including social welfare, employment and competition legislation, will need careful consideration and clarification. It is important to ensure the provisions do not have unintended consequences or impact negatively on some cohorts, such as the genuinely self-employed, although I do not believe that to be the Senator's intention. A range of legislation, including the Employment Equality Act, the Safety, Health and Welfare at Work Act and the Unfair Dismissals Act, contains specific definitions of the term "employee" within the context of that legislation. Further scrutiny will be needed of the full range of legislation that could be affected by the Bill, which should not be passed in isolation. The Bill makes no reference to the role of the Department of Employment Affairs and Social Protection’s scope division which plays the lead role in this area and appears to direct all disputes to the Workplace Relations Commission. I do not think that is a good thing to do and ask Members to reflect on this when we discuss the Bill further on Committee Stage. I do not say this simply out of loyalty to the Department. I am concerned that it could be seen as reducing the rights of a worker to avail of existing remedies. In particular, I am aware that the Workplace Relations Act 2015 provides that complaints must be made within a set period of the employment rights contravention - normally six months. In contrast, there is no time limit for the making of applications to the Department’s scope section. Applications are often made much later, when a worker discovers the true impact of his or her employment and PRSI status, as Senator Alice-Mary Higgins noted.
While we are agreed that there is false, or bogus, self-employment, it is important to ask if there is a significant problem to be addressed. Some think the number of cases is in the hundreds of thousands, but I believe it is significant, even if the number affected is only 15,000 or 25,000. I am not dismissing the number, but I do not think it is as large as some contend. The existing mechanisms for dealing with false self-employment, including the Workplace Relations Commission and the Department's scope section, do not encounter significant levels of it. This may suggest its prevalence of is overstated or that not many people are aware of the scope division, something I hope to remedy this year. Data from the CSO quarterly national household survey record 312,000 individuals as being self-employed in 2017, which accounts for 15% of total employment. The difficulty with the level being overstated in Ireland is that it is consistent with the average level across the European Union. Either the problem is EU-wide or perhaps it is not as big as some people think.
The great majority of insurability decisions are made on foot of a request from the employed person, rather than the employer. The decisions mainly involve company directors and public sector employees and cover partnership cases and family employments. The number of cases involving false self-employment is very small. I am willing to concede that this may be because many people do not know about the scope division in the Department. In 2016 there were 138 decisions to change PRSI class to class A, the common class for employment. They included director and family employment cases, as well as public service employees and workers who were changing from being self-employed to employed. The latter category included only a small number of false self-employment cases. The small number of cases may point, as I said, to a lack of knowledge or what I believe is a real fear of retribution among workers for using State mechanisms.
These issues are not addressed in the Bill, but responsibility falls on me and my Department to ensure people feel comfortable and will be confident that retribution on the part of an employer towards his or her employee, regardless of whether he or she is self-employed, will not be tolerated. I will engage in a public awareness campaign this year to ensure everyone who is self-employed, correctly or incorrectly designated, knows of the State mechanisms in place, exactly what he or she can or cannot do and the track record such that I hope they will have confidence and security in making an application to the scope division. We had a debate on a similar topic in the Dáil last week and later that afternoon a young person who works in the environs of this Parliament brought evidence of disguised unemployment to me to enable me to help them. I am pleased to do so. Even talking about it highlights the issue and gives people confidence and security to speak up, which is great. That is to be applauded, even if we achieve nothing else, although I hope we will.
The Social Welfare Act is robust in that it allows us to recoup social insurance contributions that should have been made from the time an employment started, whether it was disguised or merely a misguided classification of social insurance. The independence of the scope section ensures people receive a fair hearing and that they are included in the correct classification which is back-dated to the time when they started in the employment. As such, the gaps noted by Senator Alice-Mary Higgins are limited to that contract of employment.
There are some technical issues with the Bill into which I will not go at this stage, but we will discuss them further. However, some of the terminology used might be strengthened.Some key terms are not defined and are likely to lead to considerable debate and litigation which we should try to avoid. For example, in section 1 the reference to a "contrary intention” in other enactments could be difficult to determine. In section 2 there is an effort to define the genuinely self-employed in the terms of a client or customer relationship. In reality, that is not how people describe their contract with each other. The implications of treating PRSI as if it were tax, as specified in section 6, need to be given very careful consideration by the Minister for Finance and the Revenue Commissioners. On the proposed amendments to section 811B of the Tax Consolidation Act 1997, Revenue has advised that the section is a specific anti-avoidance provision in relation to certain schemes which involve employment benefit trusts and does not apply to “tax avoidance transactions” as defined in section 811 or section 811C. On that basis, it is considered that the proposed inclusion of the application of section 811B to false self-employments would not be appropriate.
The Government will not be opposing the Bill. I welcome the raising of the issue by Senator Gerald Nash. I agree and concur with the premise of what he is trying to achieve and the Department will consider the Bill very carefully. In defence of my tenure and that of my predecessor and two previous Ministers, Mary Hanafin and Eamon Ó Cuiv, we are all very conscious of what we want to achieve. I know that some of the measures in place are not perfect and that they do not quite do what it says on the tin, but there is a huge range of arrangements in place to deal with complaints of false self-employment. Social welfare inspectors inspect a wide range of businesses in an ad hoc, unannounced way, which is how we catch businesses out. Inspections are also undertaken jointly with other agencies, including the Revenue Commissioners and the Workplace Relations Commission. Where evidence of non-compliance Is detected, I guarantee that it is not tolerated. Where people have been maligned or put in a position where they are in precarious employment or unfair situations, they are rectified when brought to the Department's attention. I look forward to working with Members in full scrutiny of the legislation on Committee Stage. I hope that in working together we can enhance it to secure its goals in placing it on the Statute Book.
I thank the Minister. We are on the same page in our mutual determination to deal with issues surrounding precarious work, making sure work pays and that people's dignity in the workplace is not only respected but also properly vindicated. I accept, as does the Labour Party, that we do not have a monopoly of wisdom. Therefore, we will be pleased to work with the Minister and her officials to try to ensure we properly kick the tyres in dealing this legislation and that it will be robust enough to deliver on the intentions expressed in the legislation.
Early in her contribution the Minister referred to her level of understanding of how the legislation might enhance and safeguard the rights of persons in bogus self-employment. The code of practice agreed in the mid-2000s between the employer bodies and the Irish Congress of Trade Unions has been in operation for some time.It may have served a purpose at that time, given the complexion of the labour market between then and the late 2000s, but colleagues in the Chamber and people who have worked on the front line of industrial relations in recent years will agree that the code of practice is inadequate for allowing us to deal with the increasing severity of the current problem.
I have examined the figures captured by the quarterly national household survey, QNHS. The Minister's Department used them when it started the process of considering this phenomenon in 2015 in the context of potential tax and PRSI losses to the Exchequer. We are referring to 228,000 of the 312,000 people, or some 66%, who have self-declared as self-employed without employees. We need to recognise that not all of them are the next Bill Gates, Steve Jobs or a remarkably talented entrepreneur who will be involved in the productive end of the economy creating hundreds, if not thousands, of jobs. I am convinced by the cases that I deal with in my constituency - the Minister and others might deal with similar cases - that this is a serious problem that needs to be addressed for the same reason that low-hour and if-and-when contracts need to be addressed. We must ensure that there is a floor of decency in the economy, people's rights are vindicated and protected, and the intention of their contracts, or the intention they understand them to have, is properly respected and defended.
I was concerned when I read the report that emanated from the Department in recent weeks on foot of the process started in 2015. It identified one of the key drivers of disguised self-employment, as it is elegantly described in the report, as the differential between PRSI rates. An employee pays 4% with an employer's PRSI of 10.75%. There is an incentive for a bad employer to reduce labour costs. Based on the Minister's responses and the suggestions - the report makes suggestions rather than recommendations - it is not clear what the Department will do about this beyond making some reference to the fact that the gulf between the various classes of PRSI stamp needs to be decreased to reduce the incentive. Instead of tinkering on the edges and raising greater awareness of the operation of the scope section, we need a more determined approach. One way would be to take the tests that have appeared in statute for the first time in the form of the Competition (Amendment) Act and apply them in terms of the determination of self-employment to the general worker population through primary law. That is the cleanest and most efficient way.
I was concerned when I read numbers from the scope section stating that 138 people had been moved to class A stamps last year. Looking at the bald figures, this suggests that bogus self-employment is not an issue, but we know that it is.
We know this from our day-to-day work and various commentary. It is important that people have their employment status determined in an efficacious way. I mean no disrespect to the Department's scope section, but that is not happening in a timely and efficient way. People have contacted me in recent weeks who claim to have worked with the scope section for a number of years to get determinations, appeals and so on. That is not good enough. People need clarity and a renewed focus if we are serious, not only about avoiding the race to the bottom, but about ensuring that our Social Insurance Fund is properly resourced and those who are required to pay into it are not defrauding the State in the way they are currently.