The Revenue Commissioners have recently been looking closely at individuals that provide services to businesses as self employed. In some cases the relationship between the business and the (so called) self employed individual is in reality that of employer and employee. In short this means PAYE / PRSI should be operated on payments from the business to the individual.
Generally speaking genuinely self employed individuals are regarded as being in business on their own account. They must be registered for income taxes and in many cases VAT. The self employed individual is responsible for looking after his / her own tax liabilities under the self assessment system. On the other hand employees are not in business on their own account and the employer is responsible for deducting the correct amount of PAYE / PRSI regularly from their salary at source and remitting it to the Collector General.
The potential ramifications of a business engaging an individual mistakenly as a self employed contractor (when the true essence of the relationship is employer and employee) are significant as the Revenue Commissioners will seek backdated payments of PAYE / PRSI from the employer as well as going forward.
It should be noted that the Revenue Commissioners will look at the true nature of the relationship on a day to day basis and will pay little attention to any contracts or documentation that purport to describe the relationship as something other than employer and employee.
Individuals are normally regarded as employees if:
- They are under the control of the individual or company engaging them and they are directed as to how, when and where the work is to be carried out.
- They receive fixed remuneration.
- They cannot subcontract the work.
- They work set hours per week or per month.
- They do not provide equipment.
- They are not exposed to financial risk in carrying out the work.
- They work for only one business.
If the individual comes within most or all of the above criteria he / she will normally be regarded as an employee and the employer must ensure that correct PAYE / PRSI taxes are deducted from payments.
Before you take on a contractor you should seek independent advice as to whether PAYE / PRSI should in fact be applied to his / her payments.
Please contact Kieran Kennelly, Tax Director (email@example.com) if you wish to discuss further.