The State has been accused of misclassifying thousands of workers as self-employed resulting in an estimated loss to the Exchequer of up to a billion euro a year from so-called "bogus self-employment".
The allegation is made in a submission to the Oireachtas Public Accounts Committee by campaigner Martin McMahon, who has been invited before the committee today.
Mr McMahon highlighted the resulting implications of employers paying less PRSI than was actually due for the funding of social welfare benefits, saying: "There is no pensions crisis - there is a failure to collect employers' PRSI crisis going back over 40 years which has never been resolved."
The campaigner argued that the State has been incorrect in automatically classifying groups of workers in certain sectors, eg. couriers as self-employed based on "test cases" dating back to the 1990s, rather than examining the employment status of the workers concerned based on the actual facts of their employment.
Mr McMahon has been studying the phenomenon of bogus self-employment for many years, and argues that a number of legal cases have ruled that employment status must always be decided "on the applicable law and the individual circumstances of each case".
However, he says that the Revenue Commissioners have "openly admitted to the PAC" that this is not what happens in practice.
He highlights a contradiction between the position of the Revenue Commissioners who previously told the PAC: "Revenue's position is that each case is individual and needs to be considered on its own merits."
He said this conflicted with their position for over 30 years: "In the interest of uniformity Revenue decided to treat those couriers as self-employed".
Mr McMahon argues that the automatic classification of workers as self-employed creates a windfall for employers who do not have to pay employer's PRSI - and describes this as a form of state aid.
"It is a tax break which puts compliant employers at a distinct economic disadvantage and denies employees all their rights as employees," he told the committee.
Mr McMahon added: "We don't know which self appointed spokesperson for all couriers, past, present and future, said they were happy to be self-employed."
Mr McMahon cited correspondence from the Social Welfare Appeals Office on 9 January 2019 conceding: "On occasion over the years an approach of having 'test cases' has been taken or considered by the Social Welfare Appeals Office".
He goes on to note that two years ago, the Department of Social Protection effectively acknowledged that the test cases were potentially unlawful, stating: "The minister is also looking at changing legislation to permit deciding officers to make determinations on the employment status of groups or classes of workers."
He also cites a letter to the PAC from the Secretary General of the Department of Social Protection on 9 May 2019, stating: "There is no legislative provision which provides for Appeals Officers to make decisions on the employment status of groups or classes of workers who are engaged or operate on the same terms and conditions."
Mr McMahon said: "The Department of Social Welfare and Revenue, in accepting precedential test cases created by the Social Welfare Appeals Office, and in using those precedential test cases to classify thousands of workers as self-employed by default, are the biggest creators of bogus self-employed workers in the State," Mr McMahon's submission claims.
"ICTU has calculated the loss of PRSI and taxes to the State from the construction industry alone at approximately €240 million per year. Extrapolating from this figure across all sectors results in an annual loss to the Exchequer in excess of €1 billion every year," his submission concludes.
Committee Chair Brian Stanley of Sinn Féin also quoted recent correspondence from the Revenue in which it maintained that each case was individual, and needed to be considered on its own merits.
However, he commented that this position seemed to be "significantly at odds with the courier industry" where the default position was that the person was considered to be self-employed in the first instance.
Mr McMahon noted that until the Social Welfare Appeals Office was established, workers could appeal an unfavourable decision to the Circuit Court - but subsequently workers had to take such cases to the High Court, with a greater risk of a more expensive bill for legal costs.
Sinn Féin TD Imelda Munster cited an Irish Congress of Trade Unions submission suggesting that the situation could best be resolved if legislation were introduced presuming workers to be direct employees by default unless the employer proved otherwise.
Mr McMahon agreed, stating that the way it works now is that the Revenue and the Department of Social Protection are classifying workers in certain sectors as self-employed by default.
Deputy Catherine Murphy cited cases where people in construction had been classified as self-employed, but only realised the consequences when they got to their 50s and were out of work or heading for pension age that they had lost out on certain entitlements.
Mr McMahon queried who benefited from the current situation, saying: "Again 'cui bono' who benefits from this situation? It is not the State, not the worker, it is employers who are using it to have 30% in labour costs. That's who benefit. If the Revenue say it's not an issue let them prove it, and if it is an issue, quantify it."
The employment rights campaigner said that if the Department of Social Protection could send social welfare inspectors out "to look through the knicker drawers of lone parents", they could look through their own data to establish the scale and cost of bogus self-employment. He claimed they simply did not want to.
He called for the abolition of the Social Welfare Appeals Office, and argued that all decisions made on the basis of a test case should be set aside.
He said all existing and future cases on insurability of employment that would have been appealed to the Social Welfare Appeals Office should instead be appealed to the Circuit Court.
Asked whether further legislation would be required, Mr McMahon said that could be pointless, as "if the Department of Social Protection says it doesn't feel compelled to act within the legislation, then what's the point of more legislation that they will simply ignore".
Mr McMahon also criticised the practice of "intermediary set-ups" where workers supply their services to a company via an intermediary structure.
He said these practices gave companies a competitive advantage by not having to pay holiday pay and taxes, resulting in driving down standards.
Mr McMahon also criticised employment practices in RTÉ, where an external review by Eversheds of hundreds of employment contracts had found at least 81 of them were actually de facto employees.
Social Democrats Co-Leader Catherine Murphy TD, who raised the RTÉ case, noted that permanent employment had been offered to a cohort of people.
Mr McMahon told the committee that RTÉ had brought in a private company - not the Department of Social Protection, the Revenue Commissioners or the Social Welfare Appeals Office - to do the scoping exercise because of "decades of complaints" that workers had been misclassified.
He said the fact that at least 81 cases had been found in one company suggested that bogus self-employment was being used as a "business model" in RTÉ.
He alleged it was only when the Public Accounts Committee said it was going to investigate bogus self-employment that the department had said it was now looking at RTÉ - which he described as a "bit late".
He noted that because the investigation had not been carried out by a department inspection, there was no sanction.
Mr McMahon said workers had been deprived of their rights for years, and then offered "derisory" contracts.
He said they should receive back payments "to the year dot".
PAC Chair Brian Stanley noted that RTÉ was not there to defend itself.
In a statement, RTÉ rejected the claim that it was a bogus employer.
"RTÉ, consistent with the media industry worldwide, has and will continue to have a mix of employees and contracted personnel," it said.
It noted that in November 2017, it had publicly confirmed that it would review the status of all individuals providing services to RTÉ, and had engaged Eversheds Sutherland - an independent specialist firm of solicitors - to carry out the review and recommend actionable next steps.
"Eversheds Sutherland reviewed the status of 433 contractors of which 82 were deemed to be more appropriately classified as employees. The remainder were assessed as being correctly categorised. Across 2019, RTÉ offered permanent contracts of employment to those 82 contractors, of which 79 have accepted. Both RTÉ and the Trade Union Group engaged in this process and the report and outcomes were welcomed by the parties involved," it concluded.
The Department of Social Protection said it was "entirely untrue" to suggest that decisions on employment classification were made on the basis of "test cases".
It acknowledged the lower rate of PRSI contribution which employers pay for contractors compared to employees.
"Employers pay a PRSI contribution of between 8.8% and 11.05% of each employee's earnings, depending on the pay level. A business is not obliged to pay any PRSI in respect of self-employed contractors it engages."
It highlighted that the self-employed are now eligible for a range of benefits including the State Pension (Contributory), Widow's, Widower's or Surviving Civil Partner's Pension (Contributory), Guardian’s Payment (Contributory), Maternity and Adoptive Benefits, Paternity Benefit (from September 2016), Treatment Benefits (from March 2017) and Invalidity Pension (from December 2017) which also qualifies them for Partial Capacity Benefit.
They are also eligible for Jobseeker’s Benefit (Self-Employed) and Parents’ Benefit schemes, which were introduced in November 2019. In addition, they may qualify for the Pandemic Unemployment Payment and the Covid-19 Enhanced Illness Benefit.
However, they do not qualify for Illness Benefit (apart from the Covid Illness Benefit), Carer’s Benefit, Health and Safety Benefit and Occupational Injuries Benefits.
The Department said it was not possible to quantify the number of self-employed workers who may be incorrectly classified.
However, it pointed to a 2018 report compiled by the Departments of Social Protection and Finance along with the Revenue Commissioners found no indication that self-employment was increasingly accounting for a significant share of the labour force.
It said that CSO data since then suggested that this was still the case
"While the CSO Labour Force Survey (pre-Covid) statistics indicate that 235,000 self-employed people have no paid employees, there is no evidence to indicate that a large proportion of those workers are not in fact genuinely self-employed. Accordingly, any estimates of revenue’s foregone are speculative at best and not based on any facts," it said.
It also defended its record on inspections for compliance.
The Department pointed to the establishment of an Employment Status Investigation Unit in late 2019 comprising a dedicated team of social welfare inspectors to focus on detecting and investigating "false self-employment" and inspecting employers and sectors for compliance," it confirmed.
"While the focus of the ESIU is PRSI compliance, it links nationwide with other inspectors in the Department, Revenue and the Workplace Relations Commission, who also conduct employer inspections for purposes such as social welfare, tax and employment rights compliance."
