Working Proprietary Directors Classification for Social Insurance

Purposes

1. Clarification

Section 16 of the Social Welfare and Pensions (Miscellaneous Provisions) Act 2013 clarifies
the status for social insurance purposes of working directors who own or control 50% or more
of the shares in the company in which they work.

2. Social Insurance Status

An individual's classification for social insurance purposes is important as it affects the rate of
Pay Related Social Insurance (“PRSI”) which they pay on their salary or income. This in turn
affects the social insurance benefits to which they are entitled. Generally an individual is
classified for PRSI purposes as an employee or as self-employed.

Where an individual is classified as an employee PRSI is payable on their earnings by the

employee and their employer. Generally employees pay PRSI Class A. Class A provides
them with entitlement to the full range of social insurance benefits including short term
benefits in respect of illness, unemployment and maternity as well as long term benefits such
as Widow/Widower’s or Surviving Civil Partner’s Pension and State Pension.

Where an individual is classified as self-employed they pay PRSI Class S on their earned
income from self-employment. Those paying Class S can establish entitlement to certain
short-term benefits (i.e. maternity benefit) as well as long term benefits such as
Widow/Widower's or Surviving Civil Partner’s Pension and State Pension.

Classification of Working Directors

Up to now the classification for PRSI purposes, of directors of limited companies who work in
that company (“proprietary directors”), has been determined on a case by case basis. This
determination takes into consideration the Code of Practice for Determining the Employment
or Self-employment Status of Individuals.

Under the provisions of Section 16 of the Social Welfare and Pensions (Miscellaneous
Provisions) Act 2013 proprietary directors who own or control 50% or more of the
shareholding of the company, either directly or indirectly, cannot be an employee of that
company. This provision comes into effect from 1 July 2013.

In these circumstances the individual is classified as self-employed and is liable to pay

PRSI at Class S.

The classification of proprietary directors who own or control less than 50% of the
shareholding of the company will continue to be determined on a case by case basis, taking
into consideration the Code of Practice for Determining the Employment or Self-employment
Status of Individuals.

3. Application of the Changes

The new provision will apply to proprietary directors both prospectively and retrospectively.

Where these provisions are to be applied retrospectively, a person has the option of
electing to have the decision, in relation to his or her employment prior to the enactment of
the legislation, made under the Code of Practice for Determining the Employment or Self-
employment Status of Individuals. Any decision will only apply to the period of employment
prior to the enactment of the legislation.