Determining the Employment Status of Workers for Tax Purposes – January 2025
New guidance on determining the employment status of workers for tax purposes has been published. It follows a recent Supreme Court judgment relating to Domino’s Pizza (Karshan Limited). In that decision, it was determined that the individuals involved should be treated as employees and not contractors.
The Domino’s Pizza judgment fundamentally changes the decision-making process as to whether an individual is an employee or is self-employed. Perhaps the most instructive point to note is Revenue’s statement that: “On foot of this judgment, it’s expected that there will be an increase in the number of workers that will be determined to be employees for tax purposes ……..”.
It is clear that, in Revenue’s view, many individuals are incorrectly being treated as self-employed. It is only a matter of time before Revenue begin to investigate this. Action is therefore required now, in advance of Revenue intervention.
The guidelines set out a five-step “decision-making framework” which is derived from Domino’s / Karshan. The framework enables employers to identify whether a worker is:
- an employee, i.e., engaged under a “contract of service”, or
- self-employed, i.e., engaged under a “contract for services”
Takeaways for Employers
- Employers must ensure that the correct taxes are deducted from employees’ pay and reported through the PAYE system. An employer that has not already self-reviewed their workforce model in light of Karshan should carefully review the Guidelines and do so now.
- The Karshan decision relates solely to the tax treatment of individuals. However, it is of critical importance to employers given the overlap in the tests used by Revenue and also bodies adjudicating on employment rights, for example the WRC and civil courts, in determining worker status. Where a contractor is misclassified, this gives rise to considerable risks. This includes potential tax/social welfare liabilities and/or employment law claims.
- Revenue’s view of the tax treatment of services supplied through a Personal Services Company or a Managed Services Company has not changed on account of Karshan. Revenue will not look behind corporate structures except in very limited circumstances.
For more information and expert advice, please call your usual PSC contact.