Contractor or employee – this critical distinction has become the most expensive question facing Irish businesses after the Supreme Court’s landmark Domino’s Pizza ruling. Right, let’s talk about the elephant in every Irish boardroom right now.
You know that contractor you’ve been working with for the past two years? The one who invoices you monthly, works from their own laptop, and swears they’re running their own business? Well, after the Supreme Court’s bombshell decision in the Domino’s Pizza case, Revenue might see things very differently.
And trust me, the consequences? They’re keeping business owners up at night – and for good reason.
The Day Everything Changed: October 2023
Picture this: Domino’s Pizza thought they had it all figured out. Their delivery drivers were contractors, right? They had contracts saying so. The drivers used their own vehicles. They could technically refuse work. Case closed?
Not quite.
In October 2023, the Supreme Court dropped a decision that sent shockwaves through every business in Ireland: The Revenue Commissioners -v- Karshan (Midlands) Limited t/a Dominos Pizza [2023] IESC 24. And honestly? It changed everything we thought we knew about contractor classification.
Last week, I was chatting with a tech company owner over coffee in Temple Bar (the coffee was terrible, but the conversation was gold). He told me he’d just spent €15,000 on legal fees reviewing every single contractor relationship after his accountant scared the living daylights out of him about this case.
“I thought we were grand,” he said, stirring his third sugar into that awful coffee. “Our developers all had their own companies, sent us invoices, worked when they wanted. Now I’m not sleeping.”
Sound familiar?
What Actually Happened in the Domino’s Case?
Here’s the thing – Domino’s genuinely believed their drivers were self-employed. They had all the paperwork. The drivers signed contracts saying they were independent contractors. They used their own vehicles. They could theoretically turn down deliveries.
But Revenue said “Hold on there now.”
The case went all the way to the Supreme Court, and the judges basically tore up the old rulebook. They said (and I’m paraphrasing here because legal jargon makes my head hurt): “It doesn’t matter what your contract says. We’re looking at what actually happens in real life.”
Revolutionary, right?
Actually looking at reality instead of just paperwork? Who’d have thought?
The New 5-Test System for Contractor or Employee Classification
So here’s where it gets interesting (or terrifying, depending on which side of the fence you’re on). The Supreme Court established a new 5-step process which should be applied when engaging an individual to determine if they’re really a contractor or secretly an employee.
And before you ask – no, you can’t just pick and choose which tests you like. According to Revenue’s official guidance, no single test should be considered entirely conclusive. They all matter.
Test 1: Personal Service – Can They Send Someone Else?
This is the big one. Can your “contractor” send their mate Dave to do the work instead? If not, red flag number one.
I remember working with a marketing agency last year who thought they were clever. Their contractors all had limited companies, professional invoices, the works. But when I asked, “Could Sarah send someone else to write your blog posts?” they looked at me like I’d grown two heads.
“Of course not! Sarah’s our writer. We hired her specifically.”
Boom. Failed test one.
Test 2: Control – Who’s Really the Boss?
The judgment placed a strong emphasis on this question and the level of freedom the contractor had to determine the way in which work was done. As noted in the Supreme Court judgment, control is now a fundamental factor.
Ask yourself:
- Do they decide their own hours completely?
- Can they work from Bali if they fancy it?
- Do you tell them HOW to do the work, or just WHAT needs doing?
One construction company I know got caught out here. Their “self-employed” electricians had to:
- Be on site at 7:30 AM sharp
- Wear company uniforms
- Follow company procedures to the letter
- Use company tools
Yeah… that’s not a contractor, lads. That’s an employee in fancy dress.
Test 3: Mutuality of Obligation – The Domino’s Killer
This is what sunk Domino’s. In the 2018 case of the Revenue Commissioners v Karshan Midlands t/a Domino’s Pizza, it took one misstep for the company to be penalized for misclassification. The Department of Social Protection also uses this as a key test.
Basically: Do you have to offer them work? Do they have to accept it?
If there’s an expectation on both sides that work will be offered and accepted, congratulations – you might have yourself an employee.
Test 4: Integration – Part of the Furniture?
Are they integrated into your business? This one’s tricky because it’s about the vibe as much as the facts.
Do they:
- Have a company email address?
- Attend team meetings?
- Get invited to the Christmas party? (This one actually matters!)
- Show up in your org chart?
Test 5: Enterprise Test – Are They Really Running a Business?
This is where Revenue gets really nosy. They want to know:
- Do they have other clients?
- Do they advertise their services?
- Do they have business insurance?
- Are they taking real financial risk?
One IT contractor I know failed this spectacularly. He’d been working for the same company for three years, five days a week, never advertised his services, and when asked about other clients said, “When would I have time for that?”
Facepalm
Understanding whether someone is a contractor or employee isn’t just academic – it has real financial consequences. Let me show you what’s at stake.
The Real-World Consequences (Spoiler: They’re Expensive)
Let me paint you a picture of what happens when Revenue decides your contractors are actually employees. According to KPMG’s latest employment tax update, the penalties can be devastating.
First, the money. Oh boy, the money.
Penalties are usually steeper for deliberate misclassification, but there are penalties for innocent errors. We’re talking:
- Back taxes (PAYE, PRSI, USC) for the entire period
- Interest on those back taxes (currently at 8% per annum)
- Penalties (which can be up to 100% of the tax owed)
- Both employer and employee PRSI contributions
But wait, there’s more! (Said in my best shopping channel voice)
The worker will immediately become entitled to the benefits and protections afforded employees, while you will be responsible for paying back taxes, interest, and associated fines.
That means:
- Holiday pay (going back years)
- Sick pay
- Potential unfair dismissal claims
- Pension contributions
I’ve seen businesses hit with bills of €100,000+ for just a handful of misclassified contractors. One small marketing agency nearly went under after Revenue decided their five “freelancers” were actually employees. The back taxes alone were €78,000, and that was before penalties.
Revenue’s Increased Focus (They’re Not Messing Around)
Here’s something that should make you sit up: Revenue completed 1,075 audits in 2024. The total yield from these audits was €160.6 million, with the average yield of over €150,000 per audit.
Let that sink in. €150,000 average per audit.
And they’re specifically targeting contractor relationships. On foot of Supreme Court judgement in the Karshan case, Revenue issued guidelines for determining the employment status of individuals in 2024.
We are seeing a significant number of Level 1 and Level 2 PAYE compliance interventions issued to businesses in the last few weeks with a particular focus on contractor arrangements.
Translation: They’re actively hunting for misclassified contractors.
Industries in the Crosshairs
While every industry needs to be careful, some are particularly vulnerable:
Tech and IT
The classic “contractor” industry. Developers, designers, project managers – Revenue knows this is where the money is. With tech companies often paying €500-€1000 per day for contractors, the tax implications are huge.
Construction
Already under Revenue’s microscope with the Relevant Contracts Tax (RCT) system. But even with RCT, employment status matters. Those “self-employed” plumbers and electricians? Revenue’s taking a very close look.
Healthcare
Locum doctors, agency nurses, healthcare consultants – the entire sector is built on contractor relationships. Revenue is also focusing on including directors’ loans. Another area of interest for Revenue is looking at the tax affairs of medical consultants, which to date has yielded about €12 million from about 80 cases. The Medical Council of Ireland has issued guidance on employment status for locum doctors.
Professional Services
Consultants, accountants (ironic, I know), legal professionals – if you’re billing by the hour through a limited company but working like an employee, you’re at risk. The Law Society of Ireland has warned its members about the implications.
Hospitality and Retail
Remember, this whole thing started with pizza delivery drivers. Any business using “self-employed” staff for regular shifts needs to be very, very careful. The Workplace Relations Commission has been particularly active in this sector.
Common Mistakes That’ll Cost You
After helping dozens of businesses navigate this minefield, here are the mistakes I see over and over:
1. The “But They Have a Company!” Defence
Having a limited company means nothing if they fail the other tests. I’ve seen Revenue ignore company structures completely when the reality shows employment.
2. The Long-Term “Temporary” Contractor
“Oh, John? He’s been contracting with us for five years, but it’s just temporary.”
No. Just no.
3. The Exclusive Relationship
If your contractor only works for you, doesn’t advertise their services, and couldn’t take on other clients if they wanted to… that’s not a business. That’s a job.
4. The Control Freak Approach
“Our contractors can work whenever they want! As long as it’s between 9 and 5, in our office, using our equipment, following our procedures…”
See the problem?
5. The Contract Says So!
Your beautifully drafted contractor agreement isn’t worth the paper it’s printed on if the reality doesn’t match. For example, if a contract or written declaration stated that the contractor was not an employee that this would be a means (of itself) of getting around the decision – the courts have made clear this won’t work.
Practical Solutions (Because Moaning Won’t Pay the Tax Bill)
Right, enough doom and gloom. Here’s what you actually need to do:
Option 1: Convert to Employment
Sometimes the simplest solution is the best. If they’re really employees, make them employees. Yes, it’ll cost more, but it’s cheaper than getting caught.
Several of my clients have bitten the bullet and converted their long-term contractors. One software company converted 12 contractors last year. The MD told me: “It cost us about 25% more, but I sleep at night now.”
Option 2: Restructure the Relationship
If you genuinely need contractors, make sure they’re genuine contractors:
- Encourage multiple clients
- Allow true flexibility
- Stop controlling HOW they work
- Remove them from internal systems
- Use project-based contracts with clear end dates
Option 3: Use an Umbrella Company (Carefully)
Umbrella companies can help, but they’re not a magic bullet. Revenue will still look at the underlying relationship. And remember – don’t name names, but do your research on reputable providers.
Option 4: Get Professional Advice
Look, I know every tax advisor says this, but seriously – the cost of getting it wrong is astronomical. A few thousand euro spent on professional advice could save you hundreds of thousands in back taxes.
The Institute of Chartered Accountants Ireland recommends reviewing all contractor relationships annually. A qualified professional can spot issues before they become problems.
Additional Considerations for 2025
The EU Platform Work Directive
The EU Platform Work Directive, adopted in April 2024, adds another layer of complexity. This directive creates a presumption of employment for platform workers – meaning they’re assumed to be employees unless proven otherwise.
Revenue’s Technology Arsenal
Revenue’s use of data analytics is becoming increasingly sophisticated. They can now cross-reference:
- VAT returns showing regular payments to individuals
- Personal tax returns showing single sources of income
- Social media profiles advertising “freelance” services
- Company websites listing “team members” who are supposedly contractors
Your Contractor or Employee Classification Checklist
Here’s a practical tool you can use right now. For each contractor, answer these questions honestly to determine if they’re truly a contractor or employee:
Personal Service Test:
- [ ] Can they send a substitute? (If yes, have they ever actually done it?)
- [ ] Is the contract for services, not personal service?
- [ ] Would the work continue if this specific person wasn’t available?
Control Test:
- [ ] Do they set their own hours completely?
- [ ] Can they decide where to work?
- [ ] Do they decide how to complete the work?
- [ ] Are they free from day-to-day supervision?
Mutuality of Obligation:
- [ ] Can they turn down work without consequences?
- [ ] Can you decide not to offer work?
- [ ] Is there no expectation of ongoing work?
Integration Test:
- [ ] No company email address?
- [ ] Not included in org charts?
- [ ] Don’t attend team meetings/events?
- [ ] Not managed like employees?
Enterprise Test:
- [ ] Do they have multiple clients?
- [ ] Do they advertise their services?
- [ ] Do they have business insurance?
- [ ] Are they taking real financial risk?
- [ ] Do they provide their own equipment?
Red Flag Count:
- 0-3 unchecked boxes: Low risk (but get advice)
- 4-8 unchecked boxes: Medium risk (review urgently)
- 9+ unchecked boxes: High risk (act immediately)
What to Do If You’re Already in Trouble
First, don’t panic. Second, don’t ignore it. Here’s your action plan:
1. Get Professional Help Immediately
This isn’t the time for DIY. Find a tax specialist who specializes in employment tax (preferably one with experience in Revenue interventions). The Irish Tax Institute maintains a directory of qualified professionals.
2. Consider a Voluntary Disclosure
According to Revenue’s Code of Practice for Revenue Compliance Interventions, there are reduced penalties available to businesses in making qualifying unprompted disclosures. Coming forward before Revenue finds you can significantly reduce penalties – sometimes by up to 75%.
3. Document Everything
Start building your case now. Gather evidence that supports contractor status:
- Contracts (but remember, these aren’t conclusive)
- Invoices showing VAT registration
- Evidence of other clients
- Proof of business expenses
- Insurance documents (professional indemnity insurance is a strong indicator)
- Advertising materials
- Business bank accounts
4. Review All Contractor Relationships
Don’t just fix the obvious problems. Review everyone. Revenue often expands investigations once they find one issue.
5. Prepare for the Worst, Hope for the Best
Set aside funds for potential liabilities. Better to have it and not need it than… well, you know.
The Platform Economy Twist
Just when you thought it was complicated enough, The European Parliament’s adoption of the Platform Work Directive on 24 April 2024, which introduces a presumption of an employment relationship, rather than self-employment for certain workers employed in platform work activities.
This affects:
- Delivery platforms
- Ride-sharing apps
- Freelance marketplaces
- Any digital platform connecting workers with clients
The presumption will be that platform workers are employees unless proven otherwise. That’s a complete flip of the current situation.
Looking Forward: What’s Next?
The landscape is shifting fast. Based on current trends and conversations with Revenue officials (off the record, of course), here’s what I expect:
- More Audits: Revenue made €591 million from audits in 2024. They’re not slowing down. The Revenue Commissioners’ Annual Report shows a clear trend toward increased enforcement.
- Sector-Specific Campaigns: Following the success of their contractors project, expect targeted campaigns in high-risk sectors. The Construction Industry Federation is already warning members to review their subcontractor arrangements.
- Technology-Driven Detection: Revenue’s data analytics are getting scary good. They can spot patterns that suggest misclassification. Their partnership with the Department of Employment Affairs and Social Protection means they’re sharing data like never before.
- Increased Penalties: As awareness grows, claiming ignorance becomes less credible. Expect harsher penalties for “should have known better” cases.
The Bigger Picture: Why This Matters Beyond Tax
This isn’t just about tax compliance. The European Trade Union Confederation estimates that bogus self-employment costs EU countries €125 billion annually in lost tax revenue. In Ireland alone, we’re talking about hundreds of millions.
But it’s also about workers’ rights. The Irish Congress of Trade Unions has been campaigning on this issue for years. Workers misclassified as contractors miss out on:
- Sick pay entitlements
- Maternity/paternity leave
- Protection against unfair dismissal
- Pension contributions
- Minimum wage protections
So while it might seem like Revenue is being harsh, they’re actually enforcing rules designed to protect workers and ensure fair competition between businesses.
The Bottom Line (Because We’re Accountants, We Love Bottom Lines)
Look, I get it. Contractors are convenient. They’re flexible. They’re often cheaper (in the short term). But the Domino’s case changed the game completely.
The old days of “sure, we’ll call them contractors and sure it’ll be grand” are gone. Revenue has the tools, the motivation, and now the legal precedent to come after misclassification hard.
But here’s the thing – this isn’t about Revenue being mean. It’s about fairness. Employees deserve their rights and protections. The tax system depends on everyone paying their fair share.
So what should you do?
- Audit your contractor relationships NOW
- Get professional advice (I cannot stress this enough)
- Make changes before Revenue makes them for you
- Document everything
- Stay informed – the rules keep evolving
Remember, there were 311,000 audit and compliance interventions during 2024. Don’t become a statistic.
Final Thoughts (And a Bit of Hope)
After spending the last year helping businesses navigate this mess, I’ve seen it all. The panic, the shock at the tax bills, the scramble to restructure.
But I’ve also seen businesses come out stronger. One client told me that converting their contractors to employees was “the best thing that ever happened to us.” They got more committed staff, better teamwork, and actually grew their business.
Another found that properly structuring genuine contractor relationships – with real flexibility and multiple clients – attracted better talent than before.
The point is: this isn’t the end of the world. It’s a change, yes. An expensive one if you get it wrong, absolutely. But it’s manageable if you act now.
Don’t wait for that Revenue letter to land on your desk. Trust me, that’s not a fun conversation to have with your accountant (or your bank manager).
Take action today. Review your contractors. Get advice. Make changes.
Because in the new world of Revenue’s contractor rules, it’s not about what your contract says – it’s about what actually happens Monday to Friday, 9 to 5.
And Revenue? They’re watching.
This article is for general information only and doesn’t constitute legal or tax advice. Always consult with qualified professionals for your specific situation.