Year-End Review: Employee vs. Contractor Status – Act Before 30 January 2026
Recent case law has highlighted the importance of correctly classifying workers as employees or contractors. Misclassification can lead to significant PAYE, USC, and PRSI liabilities for employers.
Why This Matters
Revenue continues to scrutinise employment arrangements, particularly where individuals are treated as contractors but operate under conditions similar to employees. This is why the Karshan Disclosure Scheme is a critical consideration for Businesses right now. Incorrect classification can result in:
- Backdated payroll taxes.
- Interest and penalties.
- Compliance risk for future audits.
Karshan Disclosure Scheme
To address historic misclassification issues, Revenue introduced a settlement scheme for the 2024 and 2025 Tax years. This scheme allows employers to:
- Voluntarily disclose misclassified arrangements.
- Settle outstanding PAYE, USC, and PRSI liabilities.
- Avoid penalties and interest.
Key Deadline
- Submit disclosures by: 30 January 2026
This is a one-time opportunity to regularise contractor arrangements without punitive costs.
What Should Employers Do Now?
- Review all contractor agreements: Assess whether working conditions align more closely with employment.
- Check indicators of employment:
- Control over work and hours.
- Integration into the Business.
- Provision of equipment and tools.
- Identify high-risk roles: Long-term contractors, exclusivity clauses, or roles similar to employees.
Example Scenario
A company engages a contractor for two years, providing equipment, setting working hours, and requiring attendance at team meetings. These factors suggest employee status. Under the Karshan scheme, the employer can disclose and settle liabilities for 2024–2025 by 30 January 2026 without penalties.
Need help assessing your workforce or preparing a disclosure? Contact our team today for guidance and support.