Crackdown on firms that falsely designate staff as self-employed

Companies that falsely designate staff as self-employed are facing higher fines of up to €25,000, as part of a new government crackdown.

The new initiative will also see a focus on the increasing use of self-employed contractors in professional sectors, as well as on more traditional targets such as bogus sub-contractors on construction sites.

Minister for Social Protection Regina Doherty plans to bring forward legislation to increase the penalties for employers who deliberately classify permanent staff as self-employed rather than employees.

This is in order to avoid paying employer’s PRSI and staff benefits such as holiday pay and sick pay.

It is understood Doherty is looking at raising the maximum fine for companies convicted in the Circuit Court from €13,000 to €25,000. The top fine for companies convicted in the District Court would rise from €2,500 to €4,000.

Up to now, the Department of Social Protection has prosecuted only a handful of employers for bogus self-employment each year, instead focusing on recovering unpaid PRSI. Around €60 million of that is recovered each year.

However, it is understood that Doherty believes the current regime does not provide enough of a deterrent. Her belief is that the prospect of more prosecutions and significant fines will put off employers from engaging in bogus self-employment in the first place.

She has set up a new standalone unit to tackle complex cases of bogus self-employment, which is due to start work next month. It will initially have five inspectors, but her department has also said that there will be an “increased level of employer inspections” carried out by the existing team of 340 social welfare inspectors.

A government source said the unit would be focusing on all sectors of the economy. “There’s an assumption that it’s all about building sites, but it’s much wider than that,” he said.

Doherty will also bring forward legislation to protect people who are falsely self-employed from being penalised if they speak out. She said that she has met a number of people who were afraid they would have to leave their organisations if they revealed their true employment status.

A new legally binding code on bogus self-employment is almost ready and will be sent to employers and unions for feedback.

It will provide clearer information for employers so that it will be more difficult for them to argue in court that they mistakenly classified their employees as self-employed.

There is an increased focus in government on tackling bogus self-employment because the social insurance fund which funds unemployment benefits and contributory state pensions is due to go into deficit.

It gets its income from PRSI payments, and switching workers from bogus self-employment contracts to PAYE status would bring in more PRSI.

The department spokeswoman said that Doherty was hoping to progress the new legislation “as early as possible in the autumn”.

There has been significant opposition pressure to take action on bogus self-employment, with private bills being introduced by Labour Senator Ged Nash, People Before Profit TD Bríd Smith and Sinn Féin social protection spokesman John Brady.

Brady said that bogus self-employment was a massive problem.

“The Irish Congress of Trade Unions has estimated that bogus self-employment in the construction sector has cost the state €640 million over the past eight years. That’s just one sector,” he said.

However, Brady said Doherty’s changes had to provide an overhaul of the entire system, which was delivering a very low rate of prosecutions. “All of the organisations have said the current structure is not fit for purpose. Bogus self-employment is going untackled and unchallenged,” he said.

A Department of Social Protection spokeswoman confirmed that increased penalties for bogus self-employment were being examined. “We are currently actively examining the possibility of increasing the deterrents for employers who misclassify employees as self-employed, including pursuing prosecutions,” she said.