Ireland: New Guidance Issued in Ireland about Misclassification of Employees in Settlement Arrangements from the Supreme Court Case of Revenue V Karshan (Midlands) Ltd. Trading as Domino’s Pizza

The Revenue Commissioners in Ireland recently released new guidance for employers which sets out how to correct any payroll tax issues resulting from the misclassification of employees as self-employed persons, in respect of 2024 and 2025, following the Supreme Court’s decision in October 2023 in Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza (“Karshan”). Any errors recorded in 2024 and 2025 tax years must have been bona fide classification errors. Employers have until 30 January 2026 to correct the errors.

The Supreme Court ruled in Karshan that delivery drivers working for Domino’s Pizza were not independent contractors but were in fact employees for the purposes of the Taxes Consolidation Act 1997.

The Karshan decision clarifies the law regarding how to determine employment status, outlining a five-stage test for employers to apply when deciding whether an individual is to be classified as an employee or independent contractor. Following the Supreme Court decision, Revenue released a guidance note for determining the employment status of individuals for tax purposes and to aid the application of this five-step test.

Since this ruling, it has become apparent that some employers may have misclassified employees, in good faith, as independent contractors and are struggling to make the appropriate corrections now. In recognition of this, Revenue is permitting employers a window of opportunity to submit corrective disclosures that amends any payroll errors by 30 January 2026.

 

Risks of Misclassification of Workers: “Contractor” vs “Employee”

An individual classified as an employee is entitled to a wide range of statutory protections and benefits, whereas an independent contractor is not entitled to the same range of protection and benefits. When a worker is misclassified, an employer can be found to have unlawfully denied the individual these entitlements.

There are a range of potential implications of the misclassification of workers, including tax and financial implications. The possibility of a range of employment claims that could be brought against an employer includes claims of statutory benefits and entitlements and claims under unfair dismissal and redundancy legislation.

Disclosures of the misclassification made up until 30 January 2026 shall not be subject to penalties or interest. Each disclosure made in respect of the years 2024 and 2025 shall be treated by Revenue as a “technical adjustment,” meaning that Revenue will not consider these liabilities to have arisen from either deliberate or careless behaviour.

The Karshan case provides important guidance on determining employment status in the gig economy context. It demonstrates that the courts will look at the substance of working arrangements rather than form alone. The case highlights the complexity of these issues and the detailed factual analysis required.

It is clear from this new guidance that Revenue will take a very strict view of any misclassification after the 30 January 2026 deadline, so it is in the interest of all employers to prioritise this issue and complete a comprehensive assessment of their workforce a soon as possible, considering both tax and employment law implications of any employees who may be misclassified as contractors.