Are Your Subcontractors Really Employees? Revenue’s Approach Explained
Revenue has recently revised its guidance on employee and self-employed contractor classification. This follows a major Supreme Court case (Karshan / Domino’s Pizza) which clarified the legal test for employment status. This update has once again brought the issue of subcontractors versus employees into focus, prompting many businesses to review how they engage subcontractors in their day-to-day operations.
Many Irish businesses, especially those operating in construction, media and courier/transport providers, rely on subcontractors to keep projects moving. However, some people currently treated as subcontractors should be classified as employees instead.
If your business uses labour only subcontractors, this is particularly important.
Is my subcontractor really an employee?
If a person is providing only their labour, under your direction, and without running a real business of their own, they are very likely an employee not a subcontractor.
This applies even if:
- They prefer to be self-employed
- They have a VAT number
- They work for you through RCT
- You’ve always treated them as a subcontractor in the past
What happens if Revenue decide a subcontractor is an employee?
If Revenue decides a subcontractor is actually an employee, the business becomes responsible for:
- PAYE
- USC
- Employer and employee PRSI
- Interest
- Potential penalties
This can add up quickly, especially where someone has been engaged for a long period.
Who is at the biggest risk?
The biggest risk is with labour only subcontractors, namely people who:
- Work under your direction or supervision
- Use your tools, equipment, or materials
- Work set hours or follow your schedule
- Are part of your day to day operations
- Don’t take on financial risk
- Don’t have employees of their own
- Don’t advertise or operate as a genuine business
What should businesses with subcontractors do?
If you use subcontractors there are 5 steps you should take to make sure you stay compliant:
1. Review your subcontractors
Focus on anyone providing labour only. Ask yourself: Are they really running a business, or are they working like an employee?
2. Apply the test
Use Revenue’s updated guidance to assess each case. The key question is whether the person is genuinely in business on their own account. Businesses should apply the test themselves but if they are unsure then they should contact their accountant.
3. Document your reasoning
If Revenue ever asks about your subcontractors, you’ll need to show how you reached the decision that they are self-employed. If someone is genuinely self-employed keep written documentation on your reasoning so you can present it to Revenue if needed.
4. Move employees to payroll
If after your review you find that subcontractors are not actually self-employed you will need to reclassify them as employees.
For many businesses, this will require:
- Moving these individuals onto payroll
- Adjusting pricing or project costing
- Reviewing how work is supervised and controlled
5. Engage with Revenue
If you discover that a subcontractor should be reclassified as an employee, you should contact Revenue as soon as possible. Interest and penalties may arise for the period during which the individual was misclassified, so early engagement is advisable.
Becoming an employer
For some business this may feel like a big shift, but Revenue’s direction is clear and the sooner businesses act, the better positioned they’ll be. This is a significant change, but with the right guidance, it can be managed smoothly and proactively. If becoming an employer is something new to you remember payroll can be outsourced to an accountant or payroll services provider, you don’t need to take the burden on yourself. Contact us today to set up a meeting about your payroll needs.
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Or contact usLast updated: 24th February 2026