PAYE payroll and CIS are two separate workstreams
Construction businesses may pay employed site staff through PAYE and engage subcontractors under the Construction Industry Scheme (CIS). A payroll company that handles ordinary employee salary calculations does not automatically administer CIS verification, deduction statements or monthly returns.
The first requirement is to separate employee payroll, subcontractor payments, worker status decisions and supplier invoicing. These can overlap operationally, but their legal and reporting requirements differ.
What needs to be scoped separately?
| Workstream | Typical records | Statutory or operational concern |
|---|---|---|
| PAYE employees | Timesheets, salary, allowances, starters/leavers | Payroll tax and RTI responsibilities |
| CIS subcontractors | Verification status, invoices, labour/material split | Correct deduction and monthly CIS reporting |
| Site-to-site allocation | Project codes, approved hours and costs | Cost reporting and margin visibility |
| Worker classification | Contract details and actual working relationship | Correct tax/employment treatment, requiring proper advice |
| Payment approvals | Authorised net payments and changes | Fraud prevention and cash control |
According to HMRC's CIS contractor guide, contractors need monthly reporting for relevant subcontractor payments and must consider employment status. This does not mean the payroll-outsourcing service described here automatically offers CIS returns.
A two-track review pack
A useful construction management report would distinguish PAYE gross/net and employer costs from subcontractor invoices and CIS deductions. Do not merge them into one unexplained “labour payroll” total. The project manager may need job-cost reporting while the payroll specialist needs separately authorised pay data.
For employed workers, the typical controls include approved hours, overtime premiums, holiday and statutory changes, location coding and joiner/leaver records. For CIS, they include subcontractor verification, evidence for materials exclusions, deduction statements and returns—but only if separately in contractual scope.
Where contractors go wrong
Assuming every subcontractor is inside CIS. Scope and employment status depend on the facts. Refer contested treatment for appropriate tax or employment advice.
Treating CIS deductions as ordinary PAYE deductions. Separate reporting and payment obligations apply.
Losing project-level traceability. If multiple supervisors submit labour hours, a good handoff includes an approved project or cost-centre code and a unique change identifier.
Leaving off-cycle payments undefined. Construction businesses may need urgent adjustments, but the approval and pricing mechanism must be agreed rather than improvised at payday.
What to send potential providers
Provide approximate salaried and hourly headcount, number of sites, pay frequencies, number of PAYE schemes and estimated monthly subcontractor volume. Ask separately whether CIS verification, statements, monthly returns and specialised status advice are offered, and by whom.
Use the outsourcing provider scorecard to assess competence and security checklist to assess record handling. For a preliminary discussion, use our contact page and do not send identifiable subcontractor records.