General

Karshan Supreme Court Decision and Revenue Guidelines

Following the Supreme Court’s decision in The Revenue Commissioners v Karshan (Midlands) Limited t/a Domino’s Pizza (the “Karshan”) in October 2023, Revenue have published their ‘Guidelines for Determining Employment Status for Taxation Purposes’ to reflect the principles set out in the Supreme Court judgment in the Karshan Case.

These Guidelines set out the key elements of the judgment and its implications for businesses engaging employees, workers, contractors or sub-contractors. It is important to note that Karshan dealt with taxation. The broader question of employment rights was not before the Court and was not considered by it.

According to the Oxford English Dictionary: “guidelines [plural] [are] ‘a set of rules or instructions that are given by an official organization telling you how to do something, especially something difficult’.”

If Guidelines are rules or instructions “telling…..you how to do something” then this is more than one ordinarily would associate with the word ‘Guidelines’.

The Guidelines refer to workers engaged in particular sectors, such as construction, telecommunications, information technology, healthcare, courier, and entertainment – as well as part-time, casual, seasonal, public sector, and platform workers.

The Guidelines also address the provision of workers through a company and through an employment agency. It confirms that engagement of companies by businesses cannot constitute contracts of service for taxation purposes, but notes that the status of workers contracting with the company should be analysed.

The Guidelines provide several examples designed to assist businesses by illustrating how the Karshan Judgment may be applied to certain working arrangements. For tax purposes, the treatment of individuals engaged as employees (‘contract of service’) differs from those engaged as contractors/self-employed (‘contract for service’).

Each business making payments to individuals needs to correctly determine whether individuals are employed or self-employed based on the facts and circumstances of each relationship and payment. While it is usually clear whether an individual is employed or self-employed, confusion has arisen in certain cases.

There is no single, clear legal definition of “employed” or “self-employed” in Irish or EU law.

Five Questions from Karshan

The Guidelines refer to five key questions set out in Karshan:

1. Does the contract involve the exchange of a wage or other remuneration for work completed?
2. If so, is the agreement one pursuant to which the worker is agreeing to provide his/her own services, and not those of a third party, to the employer?
3. If so, does the employer exercise sufficient control over the inferred employee to render the agreement one that is capable of being an employment contract?
4. An examination of the “entire factual matrix of the engagement” to determine the arrangement’s characteristics.
5. Consideration of whether any legislation requires an adjustment or supplement to the above questions.

Practical Commentary and Examples

The Guidelines contain commentary on workers engaged in specific sectors, including construction, telecommunications, IT, healthcare, courier, entertainment, part-time, casual, seasonal, public sector, and platform workers.

The Guidelines also provide commentary on the provision of workers through a company and through an employment agency, confirming that engagement of companies cannot constitute contracts of service but analysing the status of workers contracting with the company.

Several practical examples illustrate how the Karshan Judgment may be applied to working arrangements. Employers are expected to provide evidence of analysis applying the five-step framework, including looking beyond the simple wording of contracts when necessary.

The Guidelines note that relationships between businesses and individuals can change over time, and employers should regularly review relevant arrangements to ensure the correct determination is applied consistently.

Conclusion and Key Takeaways

From the perspective of businesses, Revenue’s interpretation of the Karshan Judgment provides clarity on determining the employment status of workers for taxation purposes. Businesses engaging contractors, sub-contractors, or other workers on a self-employed basis should familiarise themselves with these Guidelines.

Businesses should conduct comprehensive reviews of arrangements with all workers in light of the five-step framework to ensure correct classification. It is particularly important in the industries specifically mentioned in the Guidelines.

Employers should retain evidence of analyses conducted and regularly review engagements to ensure the framework continues to be applied correctly as relationships evolve. Section 4.3 of the guidance confirms that engagements of companies by businesses cannot be contracts of service or employment for taxation purposes.