Employment Status

Employee or Independent Contractor.

Work Status of Individual: Employee or Independent Contractor and Revenue Guidelines for determining Taxation Purposes.

Code of Practice on Employment Status.

Making a Disclosure.
The Future in a Nutshell and Commentary.

1.Work status of individual: Employee or Independent Contractor and Revenue Guidelines for Determining Employment Status for Taxation Purposes:

On 21st May 2024, Revenue published guidance outlining the tax implications of the Supreme Court judgment in ‘The Revenue Commissioners v Karshan (Midlands) Ltd. t/a Domino’s Pizza’ [“Karshan“] on determining employment status for tax purposes.

The Tax and Duty Manual, Revenue Guidelines for Determining Employment Status for Taxation Purposes, explains the five-step decision-making framework that businesses are required to use to determine whether a worker is an employee or self-employed for taxation purposes. The manual also includes a number of practical examples which will assist businesses in determining what the Supreme Court decision means for the taxation of workers they engage.

Revenue previously encouraged all businesses that were engaging contractors, subcontractors or other workers on a self-employment basis to familiarise themselves with the details of the judgment and review their workforce model in light of same. Revenue also reminds businesses that they are responsible for ensuring that the correct taxes are deducted from their employees’ pay and reported through the PAYE system.

With effect from the date of the Supreme Court judgment on 20 October 2023, employers have further clarity regarding the correct approach to employment classification.

While it is clear that employers are obliged to operate Income Tax, USC and PRSI and all employers must ensure that they are properly deducting and remitting all relevant payroll taxes, consideration must be given to Justice Murray’s comments.

In the judgement, Justice Murray stated “In the course of the judgement I make some comments about the potential injustice of Karshan being disproportionately penalised by one arm of the State for conducting its business in accordance with the law as it was found by another department of government.”

The “Five Questions” Decision-making Framework.

The decision-making framework consists of five questions as follows:

“1. Does the contract involve the exchange of wage or other remuneration for work?”. This is more commonly known as the ‘Work/Wage bargain’ and is explained in more detail in Section 3.1. of the attached Revenue Guidelines.

“2. If so, is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer?”. This is more commonly known as ‘Personal Service’ and is explained in more detail in Section 3.2. of the attached Revenue Guidelines.

“3. If so, does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?”. ‘Control’ is explained in more detail in Section 3.3.’ of the attached Revenue Guidelines.

If these three requirements are met, the decision maker must then determine whether the terms of the contract between the employer and worker interpreted in the light of the admissible factual matrix, and having regard to the working arrangements between the parties as disclosed by the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer.”. ‘All the circumstances of the employment’ is explained in more detail in Section 3.4”.
Finally, “it should be determined whether there is anything in the particular legislative regime under consideration that require the court to adjust or supplement any of the foregoing.”. ‘The Legislative Context’ is explained in more detail in Section 3.5. of the attached Revenue Guidelines.

The first three questions are to be viewed as a filter. If any of these are answered negatively, there cannot be a contract of employment. If the first three questions are answered affirmatively, questions four and five must then be considered to determine if a contract of employment exists. The Decision Tree at Section 5 provides a visual representation of how the framework should be applied

Obligation to operate Income Tax, USC and PRSI with effect from date of Supreme Court judgment.

Code of Practice on Determining Employment Status:

Determining Employment Status:The Code of Practice on Determining Employment Status gives clear information about employment status taking into consideration labour market practices and developments, legislation, and case law.

The code aims to be of benefit to employers, employees, independent contractors and legal, financial and HR professionals. It is also aimed at investigators, decision-makers and adjudicators in the Department of Social Protection, the Office of the Revenue Commissioners, the WRC, their respective appeals bodies, and the courts.

In Ireland, there is a wide range of ways to work and to operate a business. Specific legislative protections for workers apply to each type, including self-employment, full-time employment, part-time employment, temporary agency work and fixed-term contracts.

It is important to ensure that workers are correctly classified in a way that matches the reality of the relationship between the worker and the business. The choice of business model should not serve to exclude any worker from their proper entitlements.

The misclassification of a worker as being self-employed when their terms and conditions mean that they are, in reality, employees, is a matter of concern. Misclassification reduces contributions to the Social Insurance Fund and excludes workers from full Pay Related Social Insurance (PRSI) and employment rights protections.

It is also important to note that the Safety, Health and Welfare at Work Act 2005 applies to all workers on a premises, regardless of their employment status. Employers and employees all have duties under the Act. The Health and Safety Authority (HSA) is the statutory body charged with ensuring compliance in this area.

Determining employment status

In most cases it will be clear whether a worker is employed or self-employed.

However, as there is no single, clear legal definition of the terms ‘employed’ or ‘self-employed’ in Irish or EU law in order to determine a person’s employment status, both the written or oral contract and the reality behind the contract must be taken into consideration. Although the intention of the parties and any written agreement is given due consideration, they do not on their own determine the employment status for the purpose of social insurance classification, income tax or employment rights.

Accordingly, while the terms of a contract might be quite clear in stating that a worker is engaged under a contract for service, that is, as a self-employed contractor, courts and statutory bodies must consider the nature of the relationship in determining the workers’ classification for the purpose of social insurance, income tax and employment rights. Taking the full facts into account these authorities may in fact determine that a worker is engaged in a contract of service – that is, as an employee.

Why employment status matters:

‘Employment status’ for the purposes of the Code, refers to whether a person is determined to be an ‘employee’ or to be ‘self-employed’. An employee is categorised as being engaged on the basis of a ‘contract of service’ whereas a self-employed person is engaged on a ‘contract for services’.

Employment status has implications for:

Pay Related Social Insurance (PRSI) contributions and associated social welfare benefits
tax treatment
employment rights – many statutory employment rights are only available to employees, as opposed to those who are self-employed

Who makes the decision in relation to employment status?

There are a number of statutory bodies whose remit includes determining the employment status of a person. Each of these bodies make their determinations independently of each other in respect of the particular functions for which they are responsible.

These bodies are:

the Department of Social Protection, which determines employment status with a view to deciding the appropriate class of PRSI for an individual.
the Office of the Revenue Commissioners, where employment status determines tax treatment
the adjudication service of the WRC, which determines employment status as a preliminary issue when adjudicating on employment rights complaints

It is important to note that decisions of the Department of Social Protection or the WRC or Revenue are not binding on each other.

Questions to be considered – The five-step framework

The questions to be considered, when determining employment status, have been updated in light of the Supreme Court’s landmark judgment delivered in the Karshan case.

The five-step framework included in that judgment provides a clear decision-making model to determine the employment status of each worker taking account of their facts and circumstances.

The question of whether a worker is an employee can be resolved by firstly having regard to the following three ‘filter’ questions:

does the contract involve the exchange of wage or other remuneration for work?
if so, is the agreement one where the worker is agreeing to provide their own services, and not those of a third party, to the business?
if so, does the business exercise sufficient control over the worker to render the agreement one that is capable of being an employment agreement?

If any one of these questions are answered negatively it means that there can be no contract of employment.

if these three requirements are met, all of the circumstances of the arrangement/agreement/contract must be considered. In other words, whether the terms of the arrangement/agreement/contract between the business and the worker, interpreted in the light of the practical/real conditions of engagement (the “factual matrix”) are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the worker working for themselves or for the business/employer
finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires a particular approach to be taken, e.g., a person might be an employee for social insurance purposes but self-employed for employment law or tax purposes

All the relevant circumstances established by applying the framework as a whole are to be taken into account in determining the employment status of a worker in any given case.

Typical characteristics of an employee.

The five-step framework must be considered in its entirety and applied to the facts of each case. However, when considering step 4 of the framework, while all of the following factors may not apply, a worker could potentially be considered to be an employee for the purposes of step 4 where they:

are under the control of another person who directs them as to how, when and where the work is to be carried out
supply labour only
receive a fixed hourly/weekly/monthly wage
cannot subcontract the work
do not supply materials for the job
do not provide equipment other than the small tools of the trade
are not exposed to personal financial risk in carrying out the work
do not assume any responsibility for investment and management in the business
do not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements
work set hours or a given number of hours per week or month
work for one person or for one business
receive expense payments to cover subsistence and/or travel expenses
are entitled to sick pay or extra pay for overtime

Important caveats:

if the work can be subcontracted and ‘paid on’ by the person subcontracting the work, it is possible the employer/employee relationship may simply be transferred on.
it is possible that the provision of tools or equipment will not have a significant bearing on the determination of employment status, having regard to all the circumstances of a particular case.
an individual could have considerable freedom and independence in carrying out work and still be an employee
an individual with specialist knowledge might not be directed as to how the work is to be carried out and still be an employee
an individual who is paid by commission, by share, or by piecework, or in some other atypical fashion may still be regarded as an employee
some individuals work for more than one employer at the same period of time, and may still be regarded as an employee
some individuals may also be self-employed in respect of other work being performed by him or her, and may still be regarded as an employee of another business
some individuals work remotely or otherwise not on the business premises and are still regarded as employees.
employees may work in a range of ways, including, but not limited to, part-time work, temporary work, seasonal work or occasional work
some employees are paid by reference to contracted hours, while others may be paid by reference to the amount of work actually done
the hours of work or remuneration of an employee may be uncertain

Typical characteristics of self-employment.

own their own business
are exposed to financial risk by having to bear the cost of making good any faulty or substandard work carried out
assume responsibility for the investment in and management of their work activities
have the opportunity to profit from sound management in the scheduling and performance of engagements and tasks
have control over what is done, how it is done, when and where it is done and whether they, or another person, does the work
are free to hire other people, on terms they specify, 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
provide the materials for the job
provide 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
have a fixed place of business where materials, equipment etc. can be stored
costs and agrees a price for the job
control the hours of work in fulfilling the job obligations

Important caveats:

the fact that an individual has registered for Income Tax or VAT under the principles of self-assessment does not automatically mean that he or she is self-employed
a person who is a self-employed contractor in one job is not necessarily self-employed in another job – it is also possible to be employed and self-employed at the same time in different jobs
in the construction sector, for health and safety reasons, all individuals, regardless of employment status, are under the direction of the site foreman/overseer

Special circumstances and developments in the Labour market

Detailed information about: people who own or control companies, agency workers, use of intermediary arrangements, Personal Service Companies (PSC), Managed Service Companies (MSC), and workers in the digital/gig economy can be found in Section 8 of the Code.

Consequences arising from the determination of employment status

A worker’s status as an employee or as a self-employed person affects:

the way in which tax, USC and PRSI is payable to the Collector-General
as an employee, the worker will have income tax, USC and PRSI deducted from their income through their employer’s payroll system
a self-employed worker is obliged under self-assessment to pay preliminary tax and file their own income tax returns using the Revenue Online System (ROS)

Entitlement to Social Welfare Benefits:

Self-employed persons are entitled to most of the same benefits and entitlements including pensions, disability, caring and maternity/paternity and parental benefits available to employed persons. There are however some exceptions most notably self-employed people are not eligible to claim Illness Benefit. Also, separate Jobseeker Benefit arrangements apply.

Rights and entitlements under certain employment legislation

An employee has rights in respect of working time, holidays, maternity/parental leave, protection from unfair dismissal etc. A self-employed person does not have these rights and protections. (It should be noted that a self-employed person is entitled to avail of the protections provided by the Employment Equality Acts once s/he has a contract to execute any work or service in a personal capacity for the other person).

Public liability in respect of the work done

Generally, an employee will be covered by their employer’s public liability insurance, whereas a self-employed person is expected to hold their own insurance.

Making a Disclosure

The range of case law and guidance available prior to the Karshan judgment may have resulted in some employers, acting in good faith, misclassifying employees as persons engaged in contracts for services. In many cases, such persons will have been paid on a gross basis and advised to address their own tax affairs and many have done so in the belief that they were bona fide contractors. However, as the Supreme Court judgement, in late 2023, sets out the appropriate tests in relation to classification (for taxation purposes) there should be no reason for employers to have ongoing classification issues for 2024 or any subsequent year.

Notwithstanding the above, Revenue recognises that employers may have faced difficulties in making the necessary adjustments to their payroll systems following the Supreme Court judgement. Revenue is now providing employers with an opportunity to correct any payroll tax issues in respect of 2024 and where relevant, 2025, arising from bona-fide classification errors without penalty or interest. Where liabilities are settled by way of a Phased Payment Arrangement (PPA), interest is applied over the repayment period.

To the extent that payroll arrangements were not in place for 2024 or 2025, this Tax and Duty Manual sets out the settlement terms which apply for those years.

These settlement terms explicitly do not apply to any intervention which was open prior to 20th October 2023. Furthermore, they do not apply to any individual who, under the Code of Practice on Determining Employment Status in effect prior to October 2023, should have been classified as an employee. Likewise, they do not apply to any individual who should have been classified as an employee based on any published decision or determination of the Department of Social Protection, the Workplace Relations Commission, the Tax Appeals Commission or a Court. As such, where Revenue is of the opinion that the misclassification has arisen from either careless or deliberate behaviour, the full liability to Income Tax, USC and PRSI and interest and penalties will be pursued as provided for under the terms of all relevant legislation.

Opportunity to make a disclosure for 2024 and 2025

Revenue’s Compliance Intervention Framework (CIF) and the Code of Practice for Revenue Compliance Interventions provide for a consistent graduated response to taxpayer behaviour. Revenue aims to minimise the burden of tax compliance, and will provide extensive opportunities to enable taxpayers to make good any liabilities with minimum consequences.

Revenue invites employers impacted by the Supreme Court ruling to make a disclosure in respect of 2024 and 2025.

Businesses have until 30 January 2026 to correct payroll tax issues owing to employment status – without penalty from Revenue.

On 11 September 2025, the Revenue Commissioners announced an opportunity for employers to correct payroll tax issues arising in 2024 and 2025 due to a bona-fide misclassification of workers as being self-employed where they ought to have been treated as employees. The relevant employer will be permitted to enter into settlement terms in respect of the payroll tax issue without incurring a penalty where they engage with Revenue prior to 30th January 2026 on the issue. It does not apply to any mis-classification of workers prior to 2024, but I can say more on that if required.

Revenue are seriously going after persons who claim they are self employed, such as Sub-Contractors. My personal opinion is that many Sub-Contractors will find themselves re-classfied as employees.

The above is a very simple summary. Revenue has issued a huge amount of correspondence in respect of this.

In conjunction with this announcement (and as stated above), Revenue has published ‘Revenue Guidelines – Settlement arrangement arising from ‘Revenue v Karshan (Midlands) Ltd. trading as Domino’s Pizza’ (Karshan).

From a tax perspective, whether an individual is classed as an ‘employee’ or a ‘contractor’ directly impacts on who is responsible for deducting the appropriate income tax, Universal Social Charge (“USC”) and Pay Related Social Insurance (“PRSI”) from the relevant wage received by the worker, and ensuring timely remittance to Revenue.

Where:

the worker is an employee, it is the responsibility of the employer;
the worker is a contractor, it is the responsibility of the worker.

In May 2024 and to assist with the application of the test in Karshan, Revenue published ‘Guidelines for Determining Employment Status for Tax Purposes’ (Revenue Guidelines). The Revenue Guidelines summarise the test in Karshan, and include a decision tree and 19 examples to illustrate the application of the test.

In October 2024 and, again to assist with the application of the test in Karshan, Revenue, the Department of Social Protection and the Workplace Relations Commission jointly published the Code of Practice on Determining Employment Status. The publication was joint because whilst the question of employment status in Karshan was determined in the context of tax treatment by Revenue, it is intended that the test would also be consistently applied by the Department of Social Protection and in the Workplace Relations Commission, subject to differences in legislative frameworks. That being said, it cannot be assumed that a decision by Revenue, the Department of Social Protection or the Workplace Relations Commission will necessarily be replicated by the other.

Revenue’s announcement and associated Settlement Guidelines are yet further measures to assist and incentivise businesses with the application of the Karshan test.

What are the implications from an employment law perspective?

When revising the characterisation of workers from a tax perspective, businesses should also consider the implications of characterising workers as employees from an employment law perspective. Whilst the Karshan decision was a Revenue decision, the intention is that the Workplace Relations Commission would apply the same test, subject to any differences in the legislative frameworks. This means that, as a general rule, businesses would take a uniform approach to the characterisation of workers from both a tax and employment perspective.

Practically, if employers determine to re-characterise contractors as employees, they should consider implications for workers’ employee entitlements during the period of engagement, such as minimum wages, annual leave, sick leave, notice period, as well as for the maximum working week, breaks, redundancy pay and protections pursuant to the unfair dismissal jurisdiction. All of these entitlements will necessarily be determined by reference to workers’ period of continuous service, which will generally be from when they first commenced work.

Re-characterisation is likely to raise some complex technical issues for retrospective employee entitlements, for example, where a worker was absent on occasions because they were unfit for work when they may have been entitled to sick leave as an employee, or where a worker was previously absent owing to being a parent when they may have been entitled to parental leave as an employee.

Some careful strategic thinking should be applied to rectify issues associated with mischaracterisation from an employment law perspective, in particular where issues of mischaracterisation are far-reaching or apply to workers who are no longer in the employ of the business.

Revenue will treat any adjustment of liability in respect of both years as a “technical adjustment” as provided for in the Code of Practice for Revenue Compliance Interventions. This means that Revenue will not consider liabilities to have arisen from either deliberate or careless behaviour and a tax-geared penalty shall not apply to any liabilities to Income Tax, USC and PRSI in respect of these years. In addition, fixed penalties will not apply.

To avail of the settlement terms outlined in this Tax and Duty Manual, (and as stated above) all disclosures should be submitted to Revenue no later than the 30th January 2026.

What does Revenue’s announcement mean for businesses?

An issue which is most likely to arise is a misclassification of employees as contractors, resulting in an employer failing to deduct and remit the required income tax, USC and PRSI on the worker’s behalf. Businesses who engage contractors to work on their behalf would therefore be advised to review existing contractor arrangements in place anew, in light of the Karshan decision.

Applying Revenue Guidelines to Teachers who are engaged to assist the IPPN:

The five-step decision-making framework

The following five questions will assist a business in determining whether a contract is one “of service” or “for service”:

Does the contract involve the exchange of a wage or other remuneration for work? Yes.
Has the worker agreed to provide their services personally and can they sub-contract their work? The worker has agreed to provide their services personally. My understanding is that the worker cannot subcontract their work.
Does the business control what, how, when and, or where the work is done? My understanding is that the IPPN controls what, how, when and where the work is to be done. It may be possible that the “subcontractors”, as former teachers, control some of the services they supply. Do they?

If you answered “no” to any of the above questions, the worker would be considered self-employed, subject to question 5. If you answered “yes” to all three questions, you should proceed to questions 4 and 5.

What do the facts and circumstances say about the true nature of the relationship between the business and the worker? Do the arrangements show that the worker is providing services on their own account or as an employee? Having reviewed all the documentation from Revenue, I am satisfied that the engaged teachers are employees and not independent Contractors.
Is there any legislation that would change the answers to any of the above questions? For example, Section 112 of the Taxes Consolidation Act, 1997, provides that office holders are always employees for taxation purposes.

What next?

All businesses should review the arrangements with their workers to determine their employment status as a result of the judgment. Some workers previously treated as self-employed will now need to be treated as employees for tax purposes.
For those re-classified as employees for tax purposes, the business will have an obligation to operate Pay As You Earn (PAYE).
In respect of the years 2024 and 2025, where an employer identifies that there has been a misclassification of an employee as a ‘contractor’, an unprompted disclosure of the misclassification can be made via Revenue’s online service, ROS, to Revenue.
For the purposes of the settlement, the Settlement Guidelines note that employees will be treated as if they have been paid ‘gross’ by the employer, without deduction of income tax, USC or PRSI. The employer will be required to calculate the applicable income tax, USC and PRSI liabilities for the impacted employee, to be submitted as part of the disclosure.
The Settlement Guidelines provide guidance on calculation of the settlement figure (due for submission by 30th January 2026), and note:

Income tax is to be calculated at the standard rate of 20% on the gross amount paid to the employee during the relevant year.
USC is to be levied at a ‘blended rate’ of 3.5% on the gross amount paid; and
PRSI is to be calculated on an actual basis.
Credit will be available for income tax paid by the employee through the self-assessment system in respect of 2024 only.
Revenue have advised that the misclassification and resulting tax issues will be treated as a ‘technical adjustment’, and no penalties will apply.

(VI) In respect of PRSI, the employer will also be required to create a PRSI record for the impacted employee for 2024 and 2025. Guidance on creation of the PRSI record is provided within the Settlement Guidelines. While the guidance does not directly address the issue, it can be assumed that regularisation of the PRSI position will require payment of both employee and employer’s PRSI in respect of the employee.

(VII) Significance of the deadline

Where an employer fails to avail of the settlement option by the 30th January 2026 deadline in respect of any tax implications arising from a misclassification of workers for 2024 and / or 2025, this will be treated as a complete failure to engage with Revenue in respect taxes due and Revenue will apply interest and penalties.

(VIII) What about tax issues for periods predating 2024?

If businesses identify tax issues with regard to misclassification of workers for periods before 2024, the usual disclosure regime applies. To the extent they have not already been made subject to a compliance review by Revenue on the issue, an employer who identifies income tax issues arising before 2024 would be advised to consider submitting an unprompted qualifying disclosure to Revenue. While an unprompted qualifying disclosure will not provide the total relief from penalties offered under the settlement terms, it may result in a significant reduction of the applicable penalties where coupled with the full cooperation of the employer in the matter.

View Guidelines

Revenue Guidelines on Work Status of Individual

View Revenue Guidelines for Determining Employment Status for Taxation Purposes

Karshan Disclosure Opportunity

View Karshan Disclosure Opportunity

Code of Practice Work Status 2024

These Guidelines clarify the tax treatment of individuals engaged as employees (‘contract of service’) versus self-employed contractors (‘contract for service’) following the Supreme Court judgment in The Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza (October 2023).

They outline how employers should determine employment status for tax purposes, the relevant deductions, and obligations for both PAYE and self-assessed workers. The full PDF provides detailed guidance on the judgment’s implications for businesses engaging employees, contractors, or sub-contractors, including PRSI considerations and relevant State bodies’ responsibilities.

View Guidelines