If you run a construction business, you have probably asked yourself this question more than once. Should you hire workers under the Construction Industry Scheme (CIS), or should you put them on the books as PAYE employees?
Maybe you already use both. Maybe you want to grow your team but are unsure about the best setup. Either way, it is an important decision, because it affects your costs, your admin, and your compliance with HMRC.
Let’s look at the differences so you can choose the option that fits your business.
What Is CIS?
CIS stands for the Construction Industry Scheme. If you pay subcontractors under CIS, you treat them as self-employed. You deduct 20 percent tax from their invoices and send it to HMRC. If they are not registered, you deduct 30 percent. They look after their own tax return and can claim back expenses.
This setup works well when you want flexibility and do not need to commit to a permanent employee. You still need to register with HMRC, verify your subcontractors, make the deductions correctly, and file monthly CIS returns.
What Is PAYE?
PAYE stands for Pay As You Earn. If you pay someone under PAYE, they are an employee. You are responsible for running payroll, deducting tax and National Insurance, and paying employer NI. You also provide payslips, holiday pay, and a workplace pension.
It involves more admin and higher ongoing costs, but you get a core team that is committed to your business. PAYE is the right choice if someone is under your direction, works set hours, or uses your tools and vehicles.
When CIS Makes Sense
CIS is often the better route if you need subcontractors for short-term work or specialist trades. It suits situations where:
You want flexibility to scale up and down quickly
Subcontractors use their own tools and materials
They invoice you for the work
They take responsibility for how the work is carried out
It also reduces your fixed costs, since you do not have to provide holiday pay, pensions, or employer National Insurance. But you must make sure the worker is genuinely self-employed. If HMRC thinks they are really an employee, you could face backdated costs and penalties.
When PAYE Is Better
PAYE is the safer option if you want a stable, long-term team. It works best if:
Workers are under your supervision and control
They work regular hours on your projects
You want to invest in staff retention
You want to avoid disputes over employment status
You will need to run payroll and meet your obligations for holiday pay, sick pay, pension contributions and employer NI. That means higher costs, but it also gives you more control and builds loyalty in your team.
For help setting up payroll, check out our guide to the best small business payroll software.
Can You Use Both?
Yes, many construction businesses use a mix. You might keep a core PAYE team for steady projects and hire CIS subcontractors for specialist work or busy periods. This gives you stability as well as flexibility.
The key is to classify workers correctly. If someone looks and works like an employee, paying them under CIS can create problems. If you are not sure, speak to your accountant or use HMRC’s CEST tool to check.
Costs and Compliance
CIS can seem cheaper since you do not pay employer NI or benefits, but you do need to manage the scheme properly. That includes verifying subcontractors, making deductions, and filing your returns on time.
PAYE costs more, but it reduces the risk of penalties and builds a stronger, more reliable workforce. It also makes you look more professional when tendering for bigger projects or contracts, since you can show you have employees rather than only subcontractors.
Tools That Help
Whether you use CIS, PAYE, or both, the right tools make the admin easier.
Some of the links below are affiliate links. We may earn a small commission if you sign up through them, at no extra cost to you.
Monzo Pro includes six months of Xero for free, making it easier to connect your business bank account to payroll and accounting.
GoCardless helps you collect payments from clients automatically, so you have the cash flow to cover wages and subcontractor bills.
Iwoca Pay lets your customers spread payments while you get paid upfront, which can be a lifesaver when managing payroll and subcontractor costs.
So, CIS or PAYE?
There is no one-size-fits-all answer. CIS is flexible and keeps your overheads low. PAYE gives you more stability, control, and loyalty from your team.
Many construction businesses use both — CIS for short-term subcontractors, PAYE for their core employees. The key is to set things up properly, avoid misclassification, and keep your records straight.
Ready to Decide Between CIS and PAYE?
Every construction business is different, and the right choice depends on your projects, your team, and your long-term goals. If you are weighing up CIS versus PAYE, we can help you work out what makes sense.
👉 Book a call with us today to get clear, practical advice on how to structure your workforce, stay compliant, and manage costs with confidence.
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