I thank the joint committee for the invitation to attend to discuss the issue of false self-employment. I am the assistant secretary in the Department with responsibility for human resources, facilities and estates management, employment rights policy, PRSI policy and the scope section. Mr. Seán Reilly and Mr. Christopher Mc Camley deal with PRSI policy and the scope section. Mr. Dermot Sheridan has responsibility for employment rights policy, while Mr. Jim Lynch is divisional manager for the mid-west region. His responsibilities include social welfare inspections in that area.
False or bogus self-employment occurs where an employer wilfully and wrongly treats an employee as a self-employed contractor in order to avoid tax and social insurance contributions and other employment rights which attach to employment. There are robust arrangements in place for dealing with complaints of bogus or false self-employment. Social welfare inspectors inspect a wide range of businesses as part of their ongoing compliance operations. Inspections are also undertaken jointly with other agencies, including the Revenue Commissioners and the Workplace Relations Commission. Where evidence of non-compliance is detected, it will be pursued. Officials investigate specific cases referred to the Department's scope section which determines employment status and the correct class of pay related social insurance, PRSI. Where misclassification of workers as self-employed is detected, the correct status and class are determined and social insurance arrears are collected, as required. Where a determination is made that a worker has been incorrectly classified as self-employed, the employer will be required to pay the relevant employer contributions for the period in question. There is no time limit on the period for which PRSI can be collected.
An employer who knowingly and incorrectly classifies a worker as self-employed, rather than employed, in order to evade or reduce the employer's liability to pay social insurance contributions may be guilty of an offence under section 252 of the Social Welfare Consolidation Act 2005. An employer who aids, abets, counsels or procures an employee to misrepresent his or her employment status is also guilty of an offence under section 251 of the Act. Any employer who fails to pay employment contributions and/or makes false or misleading statements may also be guilty of an offence under the Act, section 254 of which requires employers to keep records of employees and people engaged under a contract for services. A person guilty of an offence is liable on summary conviction to a fine not exceeding €2,500 or imprisonment for a term not exceeding six months or both, or on conviction on indictment to a fine not exceeding €13,000 or the amount that is equivalent to twice the amount unpaid or deducted, whichever is the greater, or to imprisonment for a term not exceeding three years or both.
In addition to the work of social welfare inspectors and the scope section, the Workplace Relations Commission has responsibility for promoting and encouraging compliance with relevant employment legislation. Notwithstanding what a contract states, if a worker thinks he or she is an employee and has a complaint about how he or she is being treated in respect of employment rights or equality matters, he or she may bring a complaint to the Workplace Relations Commission. Complaints may be referred for mediation or adjudication and either the mediation agreement or the decision of an adjudication officer is enforceable in the District Court. There are strong penalisation provisions in most employment rights legislation in order that employees can feel safe in enforcing their statutory rights. Members will be aware of the improvements in employment rights in the Employment (Miscellaneous Provisions) Bill which will be brought to the Seanad shortly.
Quantitative data from the labour force survey and elsewhere indicate that the prevalence of false self-employment is lower than is perhaps perceived anecdotally. The self-employed make up less than 15% of the total number in employment.
This is at the lowest level in the 20 years for which data is readily available. It is in line with the average rate of self-employment in the EU and appears from the data to be trending downward.
The committee may be aware of the research published by the Economic and Social Research Institute in August. The document is entitled Measuring Contingent Employment in Ireland. ESRI staff looked at the prevalence of freelance self-employed with no employees in several sectors, including information technology and finance. They concluded that while freelance employment has been increasing steadily since 1998 it remains a relatively minor component of the Irish labour market, accounting for a little over 2% of total employment in 2016. The Department's report on the implications for social insurance and tax receipts of intermediary employment structures and self-employment arrangements was published in January 2018. The report was prepared by officials from our Department, the Department of Finance and the Revenue Commissioners. It was informed by a public consultation with a wide range of stakeholders. The report noted how the available data does not indicate that self-employment is accounting for any significant increase of the labour force. It also noted how the available data indicates that the proportion of self-employed people in the workforce is decreasing. The report explored the use of intermediary employment arrangements as a mechanism through which workers are represented as engaged in self-employment.
There are two main forms of intermediary structures used in lieu of a direct engagement between an end-user of services and the person providing services. These are personal service companies and managed service companies. While the report noted that intermediary arrangements can be abused to the detriment of workers, it also noted that contract for service arrangements can provide flexibility, in many instances for businesses and workers, where such arrangements are freely chosen by both parties. In many cases, the individuals involved are genuinely self-employed. However, where there is only one end-user of the services, over a period the relationship may be more akin to an employer-employee relationship. The worker in this instance does not have the protection of employment rights legislation.
The report also noted that due to the difference in social insurance contribution rates there is an incentive for employers to hire workers as self-employed rather than direct employees. It estimated potential losses based on various employment and earnings scenarios. The potential loss to the State from various self-employment arrangements ranges from a figure of €5,000 per annum at average industrial earnings, to €9,000 per annum at an earnings level of €60,000 and to circa €15,000 per annum at a salary of €100,000. These types of arrangements are more common in certain industries throughout the developed world. Committee members will be familiar with the use of these arrangements in IT, media and aviation. Different countries have tried different approaches, depending on their social insurance traditions. We continue to monitor approaches tested in other countries, including the recent developments in the UK, to ascertain if a new model may be required for dealing with people using these type of arrangements beyond the simple distinctions of employee or self-employed.
Despite the data showing no upward trend in the numbers of self-employed, the issue of false self-employment continues to attract a lot of attention. There have been a number of Private Members' Bills and an amendment to the Employment (Miscellaneous Provisions) Bill in recent months seeking to address the issue. Much of what has been attempted is already covered in existing legislation and case law. Recent efforts draw substantially from the current code of practice for determining employment and self-employment. I will return to the issue of the code shortly.
In May 2018, the Department began a month-long media campaign costing €167,000 on false self-employment and the service provided by the Department's scope section. This followed a recommendation from the report on intermediary arrangements to which I have referred. The focus of the campaign was on the worker who is falsely self-employed, pointing out the implications for social welfare benefits and employment rights, such as holiday pay. The campaign consisted of radio and online advertisements, etc. The campaign directed people to a dedicated page, www.welfare.ie/employmentstatus, which includes information on the tests used to determine employment status and how to request a formal determination from the Department's scope section as well as information about and contacts for the Workplace Relations Commission and Revenue. This information was provided in eight languages. The new web page attracted more than 10,500 visits during the campaign with an average time of over three minutes spent on the page, which is regarded as favourable given the nature of online engagement. The Department engaged directly with ICTU, IBEC and the Construction Industry Federation to share information before the start of the campaign. Contact has been maintained, with trade unions identifying specific employments that could be investigated further.
The level of direct contact with the Department's scope section from individuals as result of the campaign was surprisingly low. In the event, scope section received 50 calls and 30 emails during the campaign from individuals who had become aware of the service directly as a result of the advertising campaign. A higher level of direct engagement had been expected given the extent of anecdotal information on false self-employment. The majority of callers confirmed that they had visited the website first before contacting the Department. A total of 15 formal applications for a scope decision were registered. The types of employment included couriers and van drivers, home tutors, meter readers, personal finance, IT and media, pharmaceuticals and construction.
It has been suggested that one reason for the low response to the campaign is reluctance by individuals to seek a scope determination due to concerns over how an employer will react. If this is the case then the most appropriate way to address the issue will be through inspection. In addition, legislative measures dealing with victimisation may be required. These would be similar to those already contained in employment rights legislation to provide assurance to workers that they cannot be victimised if they raise legitimate concerns regarding their employment status. Although the response was low, the feedback from the campaign will inform the inspection work of the Department, Revenue and WRC, including in sectors other than construction. We intend repeating the media campaign on a periodic basis to keep awareness high and engagement with the sectoral representative bodies is ongoing.
In response to the concerns expressed regarding potential employer misconduct the Department's divisions have been engaged in planning employer inspections by social welfare inspectors based on the feedback gathered during the media campaign. These will focus on the sectors identified and any companies reported to scope section. A targeted control week, which involved inspector visits to 967 employers across all sectors in Dublin Central, took place during the week commencing 23 July 2018. Separately, in conjunction with Revenue a number of inspections in the construction and other sectors were carried out in the west in the second half of May 2018. The focus was on establishing correct insurability status and on challenging any cases where dubious self-employment or sub-contracting was suspected. Leaflets outlining the false self-employment campaign were issued to the main contractors and others as considered appropriate. Revenue and Department of Employment Affairs and Social Protection special investigation unit inspections were undertaken in Galway city on 10 May on three substantial sites. A total of 163 people were interviewed on the three sites and ten of these workers were identified as self-employed contractors or sub-contractors, of whom only one was supplying labour only. A follow-up investigation regarding insurability is under way in this case. Although not determinative of the overall scale of the issue at a national level, the result of this inspection, yielding just one suspected case of false self-employment, is consistent with the labour force survey data indicating that false self-employment may not be as common as the prevailing narrative suggests.
A programme of intensive reviews of potential bogus self-employment in two further divisions, Dublin north and the mid-west, will commence later this month. We are using different approaches in each division, partly to assess the best methodology for use in other divisions. The mid-west operation is adopting a sectoral approach and will focus on particular industries based on local knowledge. The Dublin north operation will follow a geographical approach targeting particular areas, including industrial estates.
Earlier I mentioned the code of practice for determining employment and self-employment status of individuals. This was drawn up by a Government-appointed expert group in 2001 and updated in 2007 with a view to encapsulating the criteria established over time for differentiating employment from self-employment. The code is in need up updating to take account of aspects of recent case law and the development of more complex areas of work such as the use of intermediary employment arrangements, including personal service and managed service companies, platform services, web-based work, etc. Such arrangements may not be adequately addressed by the current code. A working group was established in August to look at updating the code and we hope to have a draft available shortly. We intend consulting with employer and employee bodies before finalising the text. As part of our review we will consider the feasibility of putting the code on a legislative basis while ensuring that it continues to reflect the direction of the courts that each case must be looked at on an individual basis.
In considering whether new measures may be required to tackle an issue such as false self-employment we need to take due account of the available data and evidence on the prevalence and impact of the issue. We should also consider if there are existing measures available in legislation that can be applied to address the issue. Finally we need to be mindful of the labour market impacts of any new measure. One of the characteristic features of the Irish labour market is its flexibility. The flexibility of the labour market is, it has been argued, one of the key factors supporting employment recovery and growth in the post-recession period. The available data indicate that the prevalence of self-employment is in fact diminishing and is now at its lowest recorded level over the past 20 years.
There are already significant legislative powers to investigate and sanction employers and employees who falsely declare their social insurance status as self-employed rather than employed. On balance the view of the Department is that, with the possible exception of anti-victimisation protections, there are already sufficient legislative provisions and powers to enable the State and this Department to identify, investigate and enforce the false declaration of employment as self-employment, including through criminal prosecutions.
The Department considers that the appropriate response at this time should be to increase the exercising of our existing investigative and enforcement powers rather than seek additional powers or impose new and unnecessary restrictions on employment at this point. We will continue to monitor and assess the position and the results of our increased focus on inspections.
We welcome the fact that this committee is shining a light on the matter of false self-employment and look forward to receiving the final report. I am conscious that Deputies and Senators often have local knowledge of employment issues on the ground and we are always happy to investigate any specific cases that they might bring to our attention. We have made available some material on the work of the Department’s scope section and our inspectors and we are happy to answer questions. I should say that for reasons of confidentiality and data protection, we are not really able to discuss individual cases. I thank the Chairman and I welcome any questions from the committee.
