Report suggests penalties for bogus self-employment
Penalties for employers who intentionally misclassify workers as self-employed, resulting in the loss of PRSI and employment rights entitlements, should be explored by the Department of Social Protection, according to a draft Oireachtas Committee report.
The confidential report also recommends exclusion of such employers from government public procurement contracts, targeted inspections, and anti-victimisation legislation for workers caught up in so-called “bogus self-employment”.
The Joint Committee on Social Protection, Community, Rural Development and the Islands has been investigating the prevalence of this phenomenon, where employers deliberately misclassify employees as self-employed contractors.
This generates significant PRSI savings for the employer, but adverse consequences for workers.
“These consequences include reduced access to social protections such as sick pay and contributory State pensions. Other consequences workers experience when they are misclassified as self-employed is a lack of access to employment rights, union participation and collective bargaining,” the report states.
The confidential draft report acknowledges that the extent or cost of bogus self-employment in Ireland is “largely unknown” – though it cites a 2016 Irish Congress of Trade Unions estimate that it had cost the exchequer €600 million in recent years.
It argues deterrents are not strong enough, but stresses that “…any new deterrents should be based on whether the employer intentionally misclassifed the employee.”
The report notes that if a worker is reclassified as an employee, their employer is liable to pay the backdated PRSI contributions which they previously avoided.
However, it advocates further disincentives, such as excluding such employers from state contracts.
“The Public Procurement Guidelines for Goods and Services state that Contracting Authorities have the discretion to exclude candidates from competing in Public Procurement Competitions if they can demonstrate violations of labour law obligations. The Committee is of the opinion that WRC adjudications could be used to demonstrate violations of labour law and preclude such companies from the Public Procurement process in the future,” it states.
The report also calls for a standard, consistent definition of an employee to be applied to all employment legislation.
It expresses serious concern that the current binary system based on employees and employers fails to capture “platform” or “gig economy” workers – and calls for a minimum level of payments based on Joint Labour and Minimum Wage Agreements.
“Given the precarious nature under which platform and gig economy workers currently work, the Committee is of the opinion that these workers must not be excluded or left out of employment rights and legislation and that the law must be robust enough to capture this group of workers.”
The report outlines the current system, whereby workers can seek a determination of their PRSI/employment status classification through the Scope division of the Department of Social Protection.
It describes the timeframe of up to five years to conclude a Scope determination as unacceptable, saying all Scope applicants should receive a decision within six months.
The report notes that in 2019, the Scope section received 60 applications for determinations, with 29 further appeals going to the Social Welfare Appeals Office.
It describes these figures as “low, especially compared to the estimates of how many workers misclassification potentially affects” – and speculates this could be due to fears of being “blacklisted”.
It notes that the Department of Social Protection has pledged to develop anti-victimisation legislation “with the aim of publishing such legislation by September 2021.”
The Committee’s draft report also recommends that the Department should update a Code of Practice for Determining Self-Employment Status and place it on a statutory footing “without delay”.
It also urges that the Department should consider “…extending the remit of the Scope Section to determine whether the misclassification of a worker was intentional and that these findings be recorded and published annually.”
The Committee also recommends that the Department of Social Protection in conjunction with the Revenue Commissioners should develop a “target of inspections” to be carried out annually to ensure “consistent levels of inspection and compliance.”
It cites a 2018 Joint Investigations Unit inspection of the construction industry with resulted in 500 employees being re-classified as employees, and €62 million being recovered for the Exchequer.
It also refers to the work of the Employment Status Investigations Unit founded in 2019 to focus on detecting false self-employment.
During that year, the total amount recovered due to employer inspections more broadly was €5.3 million, and in 2020, savings of over €1 million were made.
“Targeted inspections appear to achieve substantial results,” it notes.
It also calls for further work to collect data on areas of employment where there is a “potential or known risk of bogus self-employment in the medium to long-term.”
The Chair of the Oireachtas Committee on Social Protection Denis Naughten stressed that the confidential document was a “working draft”.
He said the issue of bogus self-employment was very important, as paying the wrong PRSI led to shortfalls in the Social Insurance Fund, necessitating a later retirement age for the state pension.
He said the Committee had taken the “very unusual” step of circulating the report to witnesses before finalising it because the original hearings had been held during the previous Dail, and they wanted to ensure that key points were not missed.
He said he was disappointed that this particular draft was in circulation, as it might not give a true reflection of the views of the committee following on from whatever further submissions they may receive.
He stressed that the committee would continue to follow up on the issue after the report is eventually published to ensure its recommendations are implemented- as the situation particularly for gig economy workers is “evolving”.