TAX EVASION SMOKESCREENS
We’re not coming down until we’re paid. The only thing we want is our jobs back, our rates... This is my first job for the past two years. I couldn’t get work.
Counsel for Unite Oisin Quinn SC argued that a trade dispute does exist with Rhatigan because of concerns about the increasing use of sub-contractors to replace traditional direct labour. He said this practice had left workers without pay, insurance cover and statutory health and safety protections.
Following the Court Case, the two men gave up their protest and in a final act of ignominy they were taken away by the Gardai. Men fighting for their right to be recognised in law as employees were very publicly shamed.
The judge said that the case "raised important issues of law and fact". The Judge is only partially correct. Not withstanding this particular case where no final determinations have been made, the law is very clear on what should happen in cases of deliberate misclassification of employees - It is an offence for any person to make a false statement - or false representation or to knowingly conceal a material fact for the purpose of evading or reducing the amount of his liability in respect of employment contributions due by him/her. There are severe penalties if an employer fails to meet obligations, these include fines of up to €12,697.38, or imprisonment for up to three years, or both. Deliberate misclassification of employees is not Tax Avoidance it's Tax Evasion. It is illegal.
Where cases such as these arise, it is the establishment of 'Fact' that is most vulnerable to manipulation. Insurability of employment (employed or self-employed) decisions are based on established facts, not assumptions. Before the law can be applied to the workers situation, a Social Welfare Inspector interviews the worker and a representative of the employer separately about the nature of the employment. When this investigation is finished, the Inspector submits detailed reports to a Deciding Officer in Scope Section for a formal decision. The Deciding Officer's decision is based on all of the available evidence and also on legal principles handed down in various court judgements over the years.
That's the theory of how 'Fact' should be established and it worked until 2000/2001 when the Employment Status Group was established under the auspices of the PPF. Since that time, it has been the policy of the State to force individual workers to take their cases to the Higher Courts regardless of any findings of fact by the State. The following quote was taken from the 'Hidden Agenda' of the ESG contained in a Communications Workers Union written Report. The CWU had been present at all the ESG meetings.
The status quo should remain - The status quo is where a worker has a disagreement over his/her employee status they can take a case to the High Court and seek legal definition. (Refer to previous blog at Button Text)
Since the implementation of the Secret Agenda of the ESG, it has been a virtual free for all for rogue employers. Secure in the knowledge that any dispute with a worker will invariably result in a decision against the worker by the State, unscrupulous employers have grown ever more sophisticated in obligation evasion.
The current 'evasion vehicles' for reducing the amount of liability in respect of employment contributions are Payrole Companies. Some of these companies are helping firms to switch their workers from the status of employee to self-employed subcontractor. The benefit for rogue employers to reclassify PAYE staff and pay them as self-employed persons is circa 20% of their labour costs.
Employers entice their staff to switch to self-employed status with offers such as a small increase in the hourly rate of pay, but more often, the job is advertised as a 'sub-contractor/self-employed' vacancy through a Recruitment Company which also acts as a Payrole company. The worker signs a contract with the payroll/recruitment company which declares that he or she is self-employed and is now being engaged by the payroll company, not the company for which he or she is working. The payroll company's fee may even be deducted from the now self-employed worker's wages, rather than paid by the employer company. The Payrole/Recruitment company offers practical advice on setting up as a limited company contractor including purchasing off-the-shelf companies. On average a Contractor pays Tax at the rate of approx. 22% versus the permanent rate of 41%. The misclassified employee invoices the Payrole Company enclosing a 'time sheet' signed by the employer. The Payrole Company then invoices the employer thus effectively disguising the true nature of the employer/employee relationship with a thin veneer of plausible deniability and separation.
This tax evasion smokescreen has long been used by employers and employees at the upper end of the employment market where there are substantial benefits for both in obligation evasion. It comes at a cost though, legitimate employers and genuinely compliant job creating entrepreneurs are shouldering an ever increasing PRSI burden to compensate for hidden economy evasion. It is only through the use of these 'evasion vehicles' for lower paid workers where evasion benefits are exclusively for the employer, that the practice has begun to be exposed by disputing workers.
The Revenue Commissioners could dismiss this sophisticated ploy as a tax evasion smokescreen with a snap of their fingers but they won't. The overriding imperative for Government is to reduce unemployment figures, it matters not a jot the loss to the exchequer or employment rights for workers caused through deliberate misclassification.
Previous Blogs on the Elephant of self-employed misclassification -
STILL AN ELEPHANT
THE GMS ELEPHANT
ARE YOU SUB-EMPLOYED?