Businesses are responsible for ensuring the correct taxes are deducted from their employees’ pay and reported through the PAYE system. The landmark Supreme Court judgment, delivered in October 2023, in Revenue Commissioners v Karshan (Midlands) Ltd. t/a Domino’s Pizza has led to updates in Revenue Guidelines to reflect the five-step decision-making framework that must be used to determine whether a person is employed under a contract of service (employee) or contract for services (self-employed).

Five-step decision-making framework

In the Karshan case, the Supreme Court decided that the question of whether a contract is one “of service” or “for service” should be resolved by reference to the following five questions which make up the decision-making framework.

1. Does the contract involve the exchange of wage or other remuneration for work?
2. If so, is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer?
3. If so, does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?
4. If these three requirements are met the decision maker must then determine whether the terms of the contract between employer and worker, interpreted in the light of the admissible factual matrix and having regard to the working arrangements between the parties as disclosed by the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer.
5. Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires the court to adjust or supplement any of the foregoing.

Guidelines for Determining Employment Status for Taxation Purposes

In May, Revenue published Guidelines for Determining Employment Status for Taxation Purposes. The Manual explains the five-step decision-making framework that businesses are required to use to determine whether a worker is an employee or self-employed for tax purposes. It also includes 19 examples to illustrate the practical application of the framework. Below is an outline of key points from the Manual.

Rectifying the position

Where a business previously treated a worker as self-employed, rather than as an employee, and the review of these arrangements by reference to the five-step framework indicates that they are an employee for tax purposes, the business must rectify that position by treating the relevant worker as an employee and operating PAYE.

Regular review of arrangements

As relationships tend to change over time, businesses should undertake a regular review of the arrangements. This is to ensure the application of the framework at that later point in time would not result in a different determination.

Previous decision by Deciding Officers

Businesses who relied on previous decisions of Deciding Officers of the Department of Social Protection to treat works as self-employed for the purpose of tax, cannot rely on these decisions for determining the correct tax treatment.

Personal/Managed Services Companies

There is no change in the tax position for businesses who engage companies (Personal/Managed Services Company) to conduct work on their behalf.

General commentary on certain sectors

Paragraph 4.2 of the Manual includes general commentary on certain sectors including:

• construction,
• part-time, casual, and seasonal workers,
• workers engaged in a domestic setting,
• couriers and other transport providers,
• media,
• public sector, and
• platform operators.

Joint Code of Practice

Revenue is working with the Department of Social Protection and the Workplace Relations Commission to update the Code of Practice on Determining Employment Status to reflect the Supreme Court judgment.

Judgment parameters

The Manual stresses that the Supreme Court judgment was concerned solely with the proper tax treatment of the workers concerned. The Supreme Court did not consider the broader question of employment rights, for PRSI purposes or otherwise.

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