Revenue quietly updated its employment status guidelines in December 2025, and many Irish business owners have not yet spotted it. The update follows the Supreme Court’s October 2023 ruling in the Karshan (Midlands) Ltd. t/a Domino’s Pizza case, which set out a clearer test for deciding whether a worker is an employee or genuinely self-employed.
If you pay subcontractors, especially those who provide labour only, this change is directly relevant to you.
So when does a subcontractor become an employee?
The honest answer is: more often than people think. If someone works under your direction, uses your tools or equipment, follows your schedule, and does not run a real business of their own, Revenue is likely to treat them as an employee.
This applies even if they hold a VAT number, work under RCT, or both parties have always assumed the self-employed arrangement was fine. The key question Revenue now asks is whether the person is genuinely working on their own account. Having a registration number alone does not settle that question.
What are the consequences of getting it wrong?
If Revenue discovers a misclassification themselves, the liability falls entirely on your business. That means PAYE, USC, employer and employee PRSI, plus interest and penalties on top. Penalties can reach up to 100% of the calculated tax liability, and Revenue may calculate the amount owed on a re-grossed basis, meaning the final bill can be considerably higher than expected.
Revenue’s guidance is clear that businesses should assess each worker relationship themselves using the updated framework. If you are uncertain about any arrangement, the right step is to get professional advice before Revenue raises the issue first.
The voluntary disclosure window has now closed. Revenue opened a one-off settlement opportunity for 2024 and 2025, allowing businesses to correct genuine, good-faith misclassification errors with no interest or penalties. The deadline was 30 January 2026. That window has now passed. Any misclassification discovered by Revenue going forward will be treated as a complete failure to operate PAYE, and the full weight of tax, interest and penalties will apply.
Who carries the most risk?
The businesses most exposed are those in construction, courier and transport, and media. Labour-only subcontractors in these sectors, people who show up, do the work you direct, and go home without any real business infrastructure of their own, are exactly the profile Revenue is focusing on.
Our RCT contractor services page covers the specific rules for the construction sector, which has additional obligations under the Relevant Contracts Tax system.
What should you do now?
Start by going through your current subcontractor relationships. For each one, ask whether they genuinely operate as an independent business. Do they take on financial risk? Do they have their own staff, their own equipment, their own clients?
If the answer is mostly no, they may need to move onto payroll. If you find workers who should be reclassified, contact Revenue proactively. Early engagement still results in better outcomes than waiting for Revenue to find the issue.
For businesses that have never run a payroll before, this can feel like a big shift. Our payroll services are there to take that off your plate entirely. You do not have to manage it in-house.
Whatever conclusion you reach about a worker’s status, write it down. Revenue expects businesses to show their reasoning. A short written record of why you concluded someone is genuinely self-employed gives you solid ground to stand on if questions are ever raised later.
If you need help reviewing your current arrangements, our team at Taxlink Accountants can work through it with you. Get in touch for a consultation.
This article is intended to inform rather than advise and is based on legislation and practice at the time of writing. Your circumstances may vary. Please contact us before taking action based on anything contained here.
