Accounting Industry

Construction Payroll - Is It All About CIS?

Even if you are new to construction payroll, you have probably already heard of the Construction Industry Scheme (CIS). But don’t make the mistake of thinking that CIS is the only thing you need to learn about - the types of payments that you may come across are arguably the most varied of any sector.

Apart from the sector having its own taxation scheme under CIS, due to varied employment forms and differing regulations, there are many other payment types you need to familiarise yourself with.

So what do you need to know about construction payroll and what structures do you have to put in place?

What is CIS?
Collecting data
Types of payment
Automated payroll
Linking it up
Finding a capable payment platform

What is CIS?

Let’s start with probably the most recognisably ‘construction’ part of payroll; CIS.

The Construction Industry Scheme was first devised in 1971 as a method of reducing or eliminating the evasion of tax and National Insurance Contributions (NICs) by subcontractors.

Over the years it has gone through many changes including the move to mandatory online filing, and more updates to the scheme are planned.

Under CIS, the main contractor is firstly responsible for ensuring that the subcontractor is registered with the scheme. The main contractor is also required to deduct a percentage (currently 20%) of the gross payment to the subcontractor and instead paying that amount to HMRC.

In many cases, a company can be both main contractor and subcontractor, in which case the finance team will need to be able to account for both deducted and suffered CIS, and paying the difference to HMRC through the monthly return.

In some cases, a subcontractor may have applied to receive gross payments, in which case no deduction should be made.

It is important to note that the CIS only applies to self-employed, partnership and limited company subcontractors and not to employed workers who pay tax and NIC at source under PAYE. This can in turn add another source of confusion to construction payroll.

Collecting data

When managing payroll for construction companies, the first and most important step is to ensure that your data collection and processing methods are suitable.

You need to have clear records of who is working, how they are paid, what payment types they are on and their CIS validation status.

This means that it is really important for finance to collaborate with HR in forming a simple, suitable process to ensure all of the necessary data is collected and stored at the outset of employment or a contract.

Whilst it is possible for smaller companies to do this using a simple spreadsheet method, as the company grows it becomes much more important to carry out data collection using dedicated systems.

Types of contracts

So what types of contracts might you come up against with construction industry payroll?

The simplest type is the ordinary salary. The payments to salaried employees do not differ from salary payments in any other industry, and fall under PAYE.

There may also be hourly paid workers within your company. This is less common in construction but still exists, especially for ancillary workers like security or cleaners. Wages will most commonly be paid under PAYE, but in the rare cases where a construction worker is paid hourly, this can be done as a subcontractor on CIS.

The most common contract type will be contractors on a ‘day rate’. Under this type of contract, the contractor will receive a set amount for each day worked. This is normally done using CIS but can in rare cases be done on an employment basis under PAYE.

Subcontractors may also be responsible for sourcing and paying for equipment, machine hire and materials. You may find that these are habitually reimbursed through payroll but these should not be subject to PAYE or CIS as they are simply expenses repayments. If you find that expenses are being reimbursed via payroll, it is worth looking into implementing a dedicated expense management system. This will be especially important for a growing company, as finances will likely be more difficult to oversee once your company is larger.

Finally, there will likely be payments to directors that need to be made. In some cases, these may purely be PAYE salary payments, but you may also need to pay dividends. In that case, you will need to have authorisation and be able to produce a dividend voucher.

With varying contract types, finance teams may find themselves making many different types of payments using different methods of taxation. So in construction, more than any other industry, keeping good records is of vital importance.

Automated payroll

The key to managing a complex payroll within construction is to remove the risk of human error wherever possible. With increasing opportunities for automation, this is easier than ever.

By removing manual processes, you will save time and enormously decrease, if not completely eliminate, the risk of errors.

And by using dedicated apps and connecting these internally, there are more opportunities for automation than ever. By using a capable HR system such as People HR to ensure your data is up-to-date, simplifying timesheets with an integrated app like Clockify, you can quickly collect the data you need.

This data will then enable you to automatically output payment files in a matter of seconds, using an online Payroll system connected to an end-to-end payments platform like Caxton.

This means that the entire employment life cycle is almost entirely without human intervention, meaning that time-consuming manual entry and the risk of manual errors is almost completely eliminated.

Linking it up

Using dedicated software hosted in the cloud comes with the added benefit that integration is a given.

Because cloud-based software was developed to live in a digital environment and speak to other software, it responds well to connective tech like the Caxton API, allowing you to seamlessly and almost instantaneously transfer data between HR systems, payroll and payment systems.

This integration is key to ensuring that your construction payroll is done correctly and on time, giving you more time to focus on other tasks that require your full attention.

Finding a capable payment platform

We’ve mentioned many of the different wage or salary payment types but it is also vital to remember the other payments that naturally flow from running payroll.

Pension payments, attachment of earnings orders, Save As You Earn schemes and loan repayments are just a few of the types of payments that an employer might have to make on behalf of employees and this is before we get to overseas subcontractors and suppliers.

Whilst we have concentrated on the front end of the payment process it would be remiss to forget that the purpose of all of this is to correctly and quickly pay employees and subcontractors.

And while the mix of domestic and international payments may make things more complicated, working with a first rate payment platform like Caxton means that you can automatically push BACS files and tremendously minimise the risk of any errors.

Process is everything for construction payroll

Having a clear process and great data collection is the bedrock of efficient, quick and accurate construction payroll.

It makes sense to use the latest tools to collect and manage data such as timesheets and HR apps with HMRC-approved payroll software.

And integration and automation are your friends. Remove all of the risks of manual processing and integrate your individual apps to improve accuracy and speed.

And of course, adopt a top-quality payment processing platform to help not only with payroll but also subcontractor and Accounts Payable transactions too.

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Caxton Payments

Caxton Payments is an alternative to traditional banks, established over 20 years, we help businesses make faster payments more reliably. We offer streamlined processes, automation through API and a collaborative solution to complex payment issues all from a single platform. Our payment capability extends from business expense management, to payroll payments, supplier payments, and currency risk management. We also offer personal prepaid travel cards and international money transfer.