Employee or contractor?

07 November 2025

Disclosure opportunity

On 11 September 2025, Revenue announced that employers have an opportunity to correct payroll tax issues arising from bona-fide errors where individuals were incorrectly classified as self-employed contractors.

This opportunity follows the Supreme Court judgment in Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza (Karshan) which introduced a five-step framework to be applied when determining if a worker is an employee or contractor for income-tax purposes. The judgment is also expected to have implications from an employment law perspective.

What is being offered?

Revenue will allow employers, who acted in good faith when relying on the case law and guidance available prior to Karshan, where in light of Karshan may have misclassified employees as contractors, to correct any payroll issues for 2024 and 2025 arising from bona-fide classification errors without penalty or interest.

Disclosures should be submitted no later than Friday 30^th January 2026 and any additional liabilities must also be paid by that date or a phased payment arrangement entered into.

Where employers do not take advantage of this opportunity and tax liabilities subsequently arise from the mischaracterisation of workers, Revenue have stated that they will form the view that there has been a “complete failure to operate” PAYE, PRSI and USC, and interest and penalties will apply.

How to determine if a worker has been mischaracterised?

The Supreme Court clarified and consolidated the law and set out a clear five-step framework for applying existing legal principles

The five-step framework for determining employment status from Karshan and Revenue Guidance published since considers the following:

• 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 of the above three questions are answered negatively, there can be no contract of employment.

If on the other hand, all three requirements are met then;

• the circumstances of the contract as a whole must be considered by the decision makers. In Karshan a number of factors were held to indicate an employment relationship existed. These included;
  • That there was an unequal bargaining power in drafting the agreement for work
  • That the workers took little or no economic risk
  • That the workers could not employ their own labour
  • That they worked exclusively for the employer and wore branded uniforms
• Finally, one should consider whether there is anything in the particular legislative regime under consideration which would require a particular approach to the characterisation of a worker be taken.

How to calculate the tax disclosure?  

The liabilities outstanding for 2024 and 2025 must be calculated separately as follows;

• Income tax calculated at the rate of 20% on the gross amount paid to the employee during the relevant year
• USC calculated based on a blended rate of 3.5% of the gross amount paid during the relevant year
• PRSI calculated on an actual basis and employee records must be updated for each employee.

The payment must then either be made in full at the time of disclosure or employers should request to enter a Phased Payment Arrangement for the liability at the time of disclosure.

Revenue guidance recommends employers advise employees not to declare income included in the employer disclosure for 2024/2025 to avoid double taxation. If an employee has already filed a 2024 return and paid tax, Revenue say a credit will be available and will handle such cases on a case-by-case basis.

Employers will also be required to create a manual PRSI record for all employees included in the disclosure.  Employers will therefore need to have the employees full details including their PPSN.

What about liabilities arising from years pre-2024?

The disclosure arrangement discussed here does not apply to periods predating the 2024 tax year.
The disclosure arrangements discussed above only apply where the correction on the misclassification arises as a result of the Karshan ruling.

The Disclousure opportunity does not apply to:

• Any intervention which was open prior to 20^th October 2023.
• To individuals who under the Code of Practice on Determining Employment Status in effect prior to October 2023 should have been classified as an Employee.
• 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 Work Place Relations Commission, the Tax Appeals Commission or a Court.

If you wish to obtain further information in respect of this disclosure opportunity or if you would like to discuss same with us, please do not hesitate to contact us.