With their generous corporate taxation rates, beautiful countryside, and highly educated workforce, the Republic of Ireland is becoming a favorite choice of companies looking to open a branch in the Eurozone. Many businesses are hiring independent contractors in Ireland to complete work for them remotely. But when it’s time to pay your contractors, what steps do you need to take to comply with Irish labor laws?
This guide will explain how to correctly classify contractors, put them on the payroll, fulfill their invoices, and remain compliant with Irish employment laws.
Step by step: How to run payroll for contractors in Ireland
Step #1: Classify your workers correctly
Since misclassification results in fewer funds for social programs like the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI), which employers and people classified as employees are legally required to pay into, three governing bodies keep a close eye on worker classification. These are the Office of the Revenue Commissioners (usually just called “the Revenue”), the Workplace Relations Commission (WRC), and the Department of Social Protection.
Misclassifying your employees and independent contractors will result in serious penalties from each (or all) of these three agencies, including:
- Holding you liable for paying back taxes and missed pension and welfare contributions, as well as various penalties and fines
- Rendering you ineligible to hire any employees who are subject to employment permits (which is a type of work visa non-Irish citizens need to apply for to work in Ireland)
- Fines of up to 250,000 euros and even 10 years of jail time
Additionally, if an employee is incorrectly classified as an independent contractor, once the issue has been flagged by the governing bodies, that individual automatically gets all the rights afforded Irish employees, including protection against unfair dismissal and benefits, while you’re required to pay everything you should have, such as back taxes, during their employment.
Fortunately, there’s a way to avoid these kinds of ugly situations: Review the Irish classification requirements carefully, and understand what separates an “employee” from an “independent contractor.” Ireland has set five key factors (also called “legal tests”) to determine which classification an individual belongs to.
These five factors are as follows:
- Mutuality of obligation. This refers to whether or not there is an agreement that the employer must accept the work performed by the individual. Generally, an employer is allowed to reject work that’s done by an independent contractor if, for example, they feel it’s not up to their standards. They can’t do this to an employee.
- Substitution. Employees cannot send substitutes to do work in their place if they just don’t feel like coming into the office for the day. Independent contractors, however, may be allowed to subcontract work to someone else.
- The enterprise test. This refers to whether or not the person doing the work could also be considered a business owner who can profit from their own enterprise or risk a financial loss. Someone who’s classified as an employee of a company can’t be considered a business owner and thus would not “pass” the enterprise test.
- Integration. This test considers how integral an individual’s work is to the running of the business. If it’s necessary to keep the company going, and the person has thus been “integrated,” they’re probably an employee. If they perform peripheral work and their loss wouldn’t affect the day-to-day running of the business, they’re probably an independent contractor.
- Control. This test checks how much control the person has over their own schedule, where they work, and how the work is completed. An individual who sets their own schedule and can work from anywhere they want is an independent contractor.
Classify your workers now using Rippling’s Worker Classification Analyzer.
Step #2: Determine the best way to pay your contractors in Ireland
Once you’ve determined your new hire is indeed an independent contractor in the eyes of Irish labor laws, you must decide exactly how you’re going to pay them. Remote work has skyrocketed in popularity since 2020, and employers and independent contractors have more choices than ever about how exactly they handle payments.
Here are a few options you can explore for paying your international contractors:
- Bank wires. You can open an Irish bank account and do direct deposits into your Irish contractors’ accounts. If you’d rather use a bank account in your own nation, you can send a global wire transfer.
- International money orders. While this may be one of the oldest methods of paying independent contractors who don’t live in the same country as their employer, it’s not the best choice. You’ll be charged a fee for each international money order you send, and the maximum you can send at one time is $1,000, which is incredibly inconvenient and expensive. Money orders are also a favorite choice of scammers, so they’re best avoided.
- Digital wallets or payment platforms. Digital wallets are great for many reasons, but they often pose problems for paying independent contractors internationally simply because different countries have different digital wallets and payment platforms. It’ll be remarkably tough to find a payment platform you can both use.
- Global payroll services. Typically, contractors aren't included in payroll, since they aren't subject to the same withholdings as employees—instead, they invoice for their services, which goes through accounts payable for many companies. But with Rippling, you can pay Irish employees and Irish contractors, wherever they are, in a single pay run.
Step #3: Use global payroll software to process payments for Irish contractors
As you saw in Step #2, there are multiple ways to pay contractors in Ireland. But the fastest and simplest way is paying contractors through global payroll software.
With Rippling, you can pay employees and contractors, across the world, in a single pay run. Here’s a preview of how Rippling’s global payroll system works:
Step #4: Keep accurate records for legal purposes
Employers aren’t legally obligated to deduct taxes or offer benefits to independent contractors; the latter are responsible for paying their own taxes and purchasing their own health insurance and pension plans.
However, you do need to keep accurate records of each contractor’s information and the contract you signed with them so you can prove they’ve been accurately classified should that ever become an issue.
Head spinning? One of the benefits of processing payments through a global payroll system like Rippling is offloading the paperwork—and letting us do the calculations and filing for you.
Frequently asked questions about running payroll for contractors in Ireland
Do you need to withhold taxes when paying contractors in Ireland?
No, foreign companies don't have to withhold payroll taxes when paying contractors in Ireland. Contractors are required to pay all of their own taxes.
Does the Irish minimum wage apply to independent contractors in Ireland?
No, Irish minimum wage laws do not cover independent contractors.
Do Irish contractors get benefits?
No. As in many other nations, independent contractors do not qualify for benefits in Ireland. Only workers classified as employees do.
Can you pay contractors in Ireland in your home currency?
Yes, but generally, the currency in which they’re paid is the decision of the contractor, not the employer. Expect that most of your Irish contractors will ask to be paid in euros; they won’t want to deal with the fees and headaches that come with converting currency.
Can you manually pay contractors in Ireland?
Yes, and it's common for small business owners to manually process contractor payments in an attempt to cut costs. But this can be time-consuming, especially as your business grows and if you work with multiple contractors in Ireland or across borders.
It's also important to note that manually processing payments comes with some risks:
- Compliance. Running payroll manually means assuming the risk of human error and omission. Protect yourself and your business with Rippling, which automatically enforces compliance with any applicable local laws—no matter where your contractors live.
- Security. Manual payroll processing also poses security risks, especially if you use spreadsheets or paper records. Sensitive employee information can be lost, stolen, or misused.
Make payroll automatic by using Rippling. Rippling syncs all your business's HR data with payroll, eliminating the need for manual data entry entirely. Employees and contractors all over the world get paid quickly (and compliantly) in a single pay run. Plus, Rippling is an authorized payroll provider by the Office of the Revenue Commissioners.
How do you turn a contractor into an employee in Ireland?
While hiring independent contractors over full-time employees can come with financial benefits, sometimes you do need a full-time employee. The challenge is making sure all the legal requirements are in order: Irish labor laws require statutory paycheck deductions like the PRSI and the USC for persons classified as employees.
With Rippling, you can effortlessly manage contractors—as well as quickly transition contractors to full-time employees—with legally compliant paperwork, benefits administration, payroll, and more. Rippling handles it all, so you stay compliant from onboarding to offboarding.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.