Employers that have contract workers who should properly be classified as employees have until the end of January to correct their position without being hit by tax and penalties from the Revenue Commissioners.
Revenue said the opportunity to make the corrections is for "bona-fide classification errors" in respect of 2024 and 2025.
Where an employer fails to take advantage of the opportunity to review its workforce practices and make a relevant disclosure, and where the liabilities from misclassification subsequently come to light, tax, interest and penalties will be applied in full, the Revenue Commissioners has warned.
The push to ensure proper classification follows a Supreme Court ruling in 2023, where it ruled that delivery drivers working for a Domino's Pizza franchisee, Karshan, were employees of that company rather than being self-employed.
It followed a 2018 ruling by the Tax Appeals Commission, which determined that delivery drivers should be considered PAYE workers rather than being classed as independent contractors.
The Supreme Court ruling has implications across all businesses, not just those using delivery drivers.
In general, self-employed individuals and certain company directors are liable to pay Class S PRSI, whereas employees generally pay Class A PRSI, with their employers also making a PRSI contribution. Each class has different PRSI rates and entitlements.
Last year, Revenue published detailed guidance explaining each of the steps involved in the decision-making framework and setting out a number of practical examples to assist businesses in determining the taxation of workers they engage.
The Supreme Court judgment, in addition to Revenue's guidance, provides clarity on the appropriate classification of workers for income tax purposes, it noted.
"However, Revenue recognises that the judgment changed the understanding of the correct legal principles and legal tests to apply in determining whether an employer had correctly classified workers as employees or as self-employed," noted the Revenue Commissioners.
The Supreme Court judgment introduced a five-step framework to be applied when determining if a worker is an employee or self-employed for income tax purposes.
Those five steps include whether a contact involves remuneration for the work done, and if that is the case whether the worker is agreeing to provide their own services and not those of a third party to the employer.
The steps also require businesses to consider whether or not they exercise sufficient control over the putative employee to render agreement one that is capable of being an employment agreement.