Classification of Directors for PRSI Purposes
Up to now the classification of directors of limited companies who work in the company (“proprietary directors”), has been determined on a case by case basis. This was based on the Code of Practice for Determining the Employment or Self-employment Status of Individuals.
A provision came into effect from 1st July 2013 under Section 16 of the Social Welfare and Pensions (Miscellaneous Provisions) Act 2013 whereby 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.
In these circumstances the individual is classified as self-employed and is liable to pay PRSI at Class S.
Those 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.
The new provision will apply to proprietary directors both prospectively and retrospectively. Where applied retrospectively, a person has the option to elect 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. Such decisions apply only to the period of employment prior to 1st July 2013.
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