Construction payroll for employees and CIS subcontractors

Why keep employee payroll and CIS separate?

A construction business can have office staff, site employees and subcontractors paid during the same week. The administrator may collect all the records together, but the payroll treatment is different. Employee wages need the relevant PAYE and National Insurance calculations, pension assessment and RTI reporting. Qualifying subcontractor payments need CIS verification, deductions and contractor reporting.

Use separate identifiers and supporting records for employees and subcontractors. An invoice or a CIS registration does not settle whether the engagement is self-employment. Where the person is an employee, PAYE applies rather than CIS. Decide status for the actual arrangement before processing, and revisit it when the relationship changes rather than assuming last year’s treatment is still correct.

How are CIS payments checked?

Verification tells the contractor whether HMRC requires the registered 20% deduction, the higher 30% rate, or no CIS deduction because gross payment status applies. We need accurate legal and tax details and work from the HMRC result. A subcontractor’s claim to be gross-paid is not enough without the relevant verification.

The deduction base also matters. VAT and qualifying amounts such as materials paid for directly by the subcontractor are excluded under the rules. Materials need reasonable supporting information, not just a convenient figure used to reduce deductions. Payment records should identify the actual amount paid and date, because the monthly return is about relevant payments, not every invoice received but left unpaid.

What records help with site-based employee pay?

Approved timesheets should distinguish basic hours, overtime, shift or other agreed premiums and any authorised deductions. Where people move between sites, use a consistent employee record so the same worker is not accidentally duplicated. Confirm rate changes with an effective date, and keep separate instructions for bonuses, absences or expenses.

Travel, subsistence and reimbursed costs need appropriate treatment based on the actual arrangement; calling a payment an expense does not make it tax-free. We ask for the relevant information before applying payroll treatment. The employer decides the entitlement and maintains supporting records. If specialist tax advice is needed for a particular payment, that is not replaced by a generic payroll description.

How do reporting and statements fit the monthly cycle?

Employee payroll follows the agreed pay frequency and RTI reporting requirements. CIS administration is reconciled to its tax month, with the relevant contractor return prepared for approval and payment and deduction statements issued. These streams need coordination, especially when the business pays staff weekly but reviews subcontractor records monthly.

The employer or contractor remains responsible for its duties and required payments. Agree who supplies approved invoices and materials information, who checks the return and who arranges HMRC payment. When there were no subcontractor payments, use HMRC’s nil-return or inactivity guidance rather than assuming no action is needed. A clear calendar is more reliable than trying to remember the deadline after the month has ended.

What affects the payroll quote for a construction business?

Headcount and pay frequency identify the employer payroll band and processing rhythm. CIS administration, mixed payment streams and incomplete records can change the scope. We confirm those requirements in writing rather than treating the employer per-payslip table as an automatic charge for every subcontractor payment.

How does it work?

1. 1

   Separate the workforce records

   We review employee and subcontractor lists, scheme references and payment cycles. You confirm the treatment determined for each engagement and identify who can approve hours, invoices, materials and status-related instructions.

2. 2

   Collect approved time and payment data

   Employee hours and changes are provided alongside separately identified subcontractor payments. We check matching details, verification results and the CIS deduction base, raising missing information rather than assuming it.

3. 3

   Approve payroll and contractor figures

   You review employee payroll reports and CIS calculations through the agreed approval route. Differences or unsupported amounts are resolved before employee reporting, statements or the contractor return are finalised.

4. 4

   Complete the agreed reporting

   We prepare payslips, RTI and pension submissions for employee payroll and the agreed CIS return and statements. You arrange payments and retain the records needed to support both reporting streams.

Common mistakes and compliance traps

CIS registration and gross payment status are not evidence, by themselves, that the worker is self-employed. Status must be determined for the actual engagement before deciding between PAYE and CIS.

Do not deduct CIS from VAT, subtract unsupported materials or confuse unpaid invoices with reported payments. Keep payroll wages and subcontractor payments distinct, even when they share a weekly bank-payment date.

• GOV.UK: contractor and subcontractor CIS guide
• GOV.UK: CIS deductions and payments
• GOV.UK: employment status for tax