The bulk of the money recovered by the Department of Social Protection’s Employment Status Investigation Unit (ESIU) last year came from the misclassification of family members rather than those who were falsely described as self-employed the Dáil’s Committee of Public Accounts has been told.

Secretary general at the Department of Social Protection, John McKeon, told the committee’s members the ESIU had recovered €3.4 million in unpaid social insurance contributions last year after examining the employment status more than 3,000 individuals but fewer than 1 per cent involved a reclassification of the individual from Class S, the category covering the majority of self-employed workers, to Class A, the category covering the majority of people in regular paid employment for a private enterprise.

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Far more common, he suggested, was the reclassification of family members from Class M, a zero PRSI rate intended to cover, among other things, family members employed in work associated with the family home, to Class A. These cases, he said, generated the vast majority of the €3.4 million figure.

“I’d say the biggest issue we have, and it definitely doesn’t get a lot of attention, is Class M. Class M is a zero rated PRSI rate and is meant to be used in cases of what’s known as subsidiary employment or prescribed relatives in family businesses.

“The law says that if you’re a prescribed relative of somebody who is self-employed – a sibling, child, a parent or a grandparent – if you’re a prescribed relative and you’re working in a family business associated with the home, you do not pay social insurance.

“However, if you’re a relative, and, for example, you’re working as part of your father’s law firm, or you’re working as part of your father’s’ pub, that’s not associated with the home and you should be paying Class S insurance.

“And what we find is that the highest level of misclassification is people on Class M, who should be Class A.

“In terms of what the ESIU did, we looked at 3,262 workers. There were 25 of those reclassified from Class S to class A. Most of the others were people in Class M. So they’re the cases that we found most fruitful.”

Niall Cody, chairman of the Revenue Commissioners, told the committee that all of the expected sectors had been represented among employers who had availed of the recent voluntary disclosure scheme that allowed employers who, acting in good faith before the Supreme Court ruling in the Karshan case which set out a five stage framework for establishing whether somebody should be considered self-employed or not, had wrongly classed some employees as contractors.

“There’s a range of sectors affected, sectors we would have expected, and probably a couple of sectors that we probably didn’t expect, like certainly the voluntary groups,” he said.

“There were a lot of representations made in January from the voluntary sector about the challenges that this will present to them and the help they would need to fund it.”

He said the expectation was that many of the organisations, which included some sports clubs or organisations, would have to go to the Government departments that fund them in the hope of securing the extra money involved.

In all, some 6,600 employees were identified as having misclassified as self-employed with €26.7 million identified as due in taxes.