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CONTRACT OF SERVICE AND CONTRACT FOR SERVICE

The law makes a distinction between a contract of service and a contract for service. Basically, a contract of service applies to an employee-employer relationship, while a contract for service applies in the case of an independent sub-contractor. This distinction is most important as protection of employment legislation does not apply to independent sub-contractors ? with the exception of health and safety legislation and equality legislation.

 

The following is a summary of the essential differences between the two sorts of contract.

Contracts of Service

  • Employer ? employee relationship
  • Usually a continuous relationship
  • A duty of care is owed to employees, as the employer
  • The employer is generally liable for the vicarious acts of employees
  • Protective legislation applies to the contract

Contract for Service

  • Employer-independent contractor relationship exists
  • A relationship organised around the completion of a once-off piece of work
  • A duty of care, arising from occupiers liability
  • The employer is generally not liable for the vicarious acts of independent contractors

How do Courts differentiate between contracts of service and contracts for service?

Courts have applied the tests of control, integration and multiple or mixed. The control test simply asks the question can the employer tell the employee what to do? In other words, is the employee under the control of the employer? The integration test asks to what extent is the employee?s work integrated into the business. Someone brought in on contract to repair or maintain plant or premises may not be integrated in any way into normal operations.

 

The multiple or mixed test asks a series of questions such as are there wages, sick pay and holiday pay? If there are, who pays them? Are PAYE and PRSI deducted? Does the worker share in the company?s profits and loses? Who provides the tools and equipment for the job? Is the employer entitled to exclusive service from the employee? A court?s interpretation will not necessarily depend upon what it says in a contract ? labels will themselves not determine the matter, the court will decide. In short, is this a case of genuine self-employment or an attempt by an employer to avoid protective legislation?

 

However, the overriding consideration or test will always be whether the person performing the work does so ?as a person in business on their own account?. Is the person a free agent with an economic independence of the person engaging the service?

 

Criteria on whether an individual is an employee

While all of the following factors may not apply, an individual would normally be an employee if s/he-

  • Is under the control of another person who directs as to how, when and where the work is to be carried out;
  • Supplies labour only;
  • Receives a fixed hourly/weekly/monthly wage;
  • Cannot sub-contract the work. If work can be sub-contracted and paid on by the person sub-contracting the work, the employer/employee relationship may be transferred on;
  • Does not supply materials for the job;
  • Does not provide equipment other than the small tools of trade. The provision of tools might not have a significant bearing on coming to a conclusion that employment status may be appropriate having regard to all the circumstances of a particular case;
  • Is not exposed to personal financial risk in carrying out the work;
  • Does not assume any responsibility for investment and management in the business;
  • Does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements;
  • Works set hours or a given number of hours per week or month;
  • Works for one person or for one business;
  • Receives expense payments to cover subsistence and/or travel expenses;
  • Is entitled to extra pay or time off for overtime.

Criteria on whether an individual is self-employed

While all of the following factors may not apply to the job, an individual would normally be self-employed if s/he-

  • Owns her or his own business;
  • Is exposed to financial risk by having to bear the cost of making good faulty or sub-standard work carried out under the contract;
  • Assumes responsibility for investment and management of the enterprise;
  • Has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks;
  • Has control over what is done, how it is done, when and where it is done and whether s/he does it personally;
  • Is free to hire other people, on her/his own terms, to do the work which has been agreed to be undertaken;
  • Can provide the same services to more than one person or business at the same time;
  • Provides the materials for the job;
  • Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account;
  • Has a fixed place of business where materials, equipment, etc can be stored;
  • Costs and agrees a price for a job;
  • Provides her/his own insurance cover, such as public liability cover, etc;
  • Controls the hours of work in fulfilling the job obligations

It should be note that a person who is a self-employed contractor in one job is not necessarily self-employed I the next job. It is also possible to be employed and self-employed at the same time in different jobs.

Consequences arising from the determination of an individual?s status

  • The way in which tax and PRSI is payable to the Collector-General. An employee will have tax and PRSI deducted from her/his income. A self-employed person is obliged to pay preliminary tax and file income tax returns whether or not s/he is asked for them;
  • Entitlement to a number of social welfare benefits such as unemployment and disability benefits. An employee will be entitled to unemployment, disability and invalidity benefits, whereas a self-employed person will not have these entitlements;
  • Other rights and entitlements, for example, under employment legislation. An employee will have rights of working time, holidays, maternity/parental leave, protection from unfair dismissals, etc. a self-employed person will not have these rights and protection;Liability in respect of work done.

To talk to an employment specialist about any employment matter contact LawPlus Employment today or view our employment law Fixed Fee Service.


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