Are Your Subcontractors Really Employees? Revenue’s New 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.
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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Or contact usLast updated: 19th February 2026