Contractors versus Employees – What is the Difference?

The terms ‘employed’ and ‘self-employed’ are not defined law but in general the term ’employee’ is generally defined as ‘a person who has entered into or works under (or, where the employment has ceased, entered into or worked under) a contract of employment;’.

The decision as to which category an individual fall into must be arrived at by looking at what an individual actually does, the way they do it and the terms and conditions under which they are engaged, through a written agreement or verbal agreement or implied. It is not simply a mater of the Employer or the individual calling themselves ‘employed’ or ‘self-employed’.

It is important that Organisations are cognisant of the differences between Contractors / Self – Employed person and Employees, and how these arrangements may be interpreted by a third party, namely the Workplace Relations Commission (WRC), the Labour Court and Revenue.

There are a number of considerations that should be taken into account to ensure that the Contractor / Self – Employed person is not in fact an Employee, does not abide by the actions of the Organisation or that the individual unknowingly strays into that employment relationship. The difference between the contracts of a Self-Employed Contractor and an Employee are that:

An Employee is employed under what is referred to as a contract of service.
A Self-Employed Contractor works under a contract
for services.

Enttlements of an Employee:
A Self-Employed Contractor does not enjoy many of the rights bestowed upon Employees, e.g., protection from unfair dismissal, paid annual leave etc. However, a risk often exists that a Self-Employed Contractor may be deemed an Employee due to the relationship they hold with an Organisation. Care should always be taken to ensure that the lines do not become blurred and that an individual’s status is clearly defined.

The key rights of an Employee include enttlements to:
Minimum wage,
Annual Leave,
Benefit for Public Holidays,
Minimum rest periods,
Employment Equality,
Fairness in terms of dismissal including redundancy,
Right to Maternity, Paternity, Adoptive, Parental, Force Majeure, Career’s and Jury Service Leave.

Criteria for an Employee:
If the lines are unclear in terms of employment status, the person whom the Organisation is deeming to be a Contractor may be entitled to the rights of an Employee outlined above due to the fact that the Organisation has been inadvertently treating them as an Employee. There is a Code of Practice in place in order to assist in determining Employment status. It outlines the criteria for whether an individual is an Employee or a Contractor / Self – Employed individual.

While all of the following factors may not apply, an individual would normally be an Employee if he or she:
Is the person under the control of another person who directs how, when and where work is to be carried out;
Supplies labour only;
Receives a fxed hourly / weekly / monthly wage;
Cannot sub-contract the work;
Does not provide equipment or materials for the job other than small tools of the trade;
Is not exposed to personal fnancial risk in carrying out the work;
Does not assume 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;
Wears a uniform;
Is entitled to extra pay or time off for overtime.

Criteria for Self – Employed / Contractor:
While all of the following factors may not apply to the job, an individual would usually be Self-Employed if he or she:
Owns his or her own business;
Is exposed to financial risk, by having to bear the cost of making good faulty or substandard work carried out under the contract;
Assumes responsibility for investment and management in 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 he or she does it personally;
Is free to hire other people, on his or her 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 his or her own insurance cover e.g. public liability cover, etc.;
Controls the hours of work in fulfilling the job obligations;
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 the job.

Factors which impact decision of Workplace Relations Commission

Some of the important factors which may influence the Workplace Relations Commission (WRC) or The Labour Court in making a decision as regards whether an individual is an Employee or not include whether the person pays their own tax or whether their Employer deducts tax, whether the individual provides their own tools and equipment, the degree of control exercised by the Employer or service user, and other issues related to this such as whether the individual wears a company uniform or not. These are all referred to as “tests” but it is important to note that each case will be considered on its own merits.

Separately, other statutory bodies may also make determination on the employment status of a person for the purposes of PRSI and tax such as Scope Section in the Department of Social Protection and the Office of the Revenue Commissioners.


In most cases it will be clear whether an individual is Employed or Self-Employed. However, it may not always be so obvious, which in turn can lead to misconceptions in relation to the employment status of individuals. The criteria above should help in reaching a conclusion. It is important that the job as a whole is looked at, including working conditions and the reality of the relationship, when considering the guidelines.

Inspectors and adjudicators will consider any formal contracts, but they will also consider how the work is actually carried out and will assess the relationship between the worker providing the service and the business paying for that service. They will consider whether the worker, or indeed, the employer, had no option but to sign up to the terms dictated by the other party. The true agreement will often only be understood by analysing in the round all the circumstances and facts of the case.

If your Organisation needs advice, support, or guidance in relation to compliance requirements or any HR issues, please check out our website or contact Adare Human Resource Management call (01) 561 3594 or email