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Are Your Subcontractors Really Employees? Revenue’s New Approach Explained

Revenue has updated its guidance on how to decide whether a worker is an employee or a self-employed subcontractor.

Updated 19 Feb 2026 | Published 19 Feb 2026

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.

Many Irish businesses, especially in construction, trades, delivery, and maintenance, rely on subcontractors to keep projects moving. But recent changes from Revenue mean that some people currently treated as subcontractors may now need to be classified as employees instead.

If your business uses labour only subcontractors, this update is particularly important.

Is my subcontractor really an employee?

Under Revenue’s new guidance, 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 from the change?

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 now?

If you use subcontractors there are 4 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 new 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

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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Updated 19 Feb 2026 | Published 19 Feb 2026

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Gearoid Condon, FCA

Gearoid is a highly experienced Chartered Accountant with 25 years of expertise in business consultancy, specialising in supporting SME business owners. Gearoid has worked with start-ups and with established businesses to improve the way they run, with particular focus on growth, efficiency, and structuring operations. Through his experience Gearoid has a strong understanding of the tax system and business regulations in Ireland.

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