HR and Payroll for Construction Companies

Construction has some of the most technically complex payroll requirements of any UK sector. CIS (Construction Industry Scheme) deductions, a mix of employees and subcontractors, site-based working, project allocation, and variable hours all add layers that generic payroll tools handle poorly.

Getting CIS wrong has serious HMRC consequences. Misclassifying workers as subcontractors when they are actually employees creates substantial tax and NI liability. And managing payroll across multiple active projects — each with different workers and cost allocation requirements — requires systems, not spreadsheets.

Construction Payroll Complexity

CIS deductions: If you are a contractor engaging subcontractors, you are required to verify each subcontractor with HMRC and deduct CIS tax (20% for registered subcontractors, 30% for unregistered). These deductions must be reported to HMRC monthly via the CIS monthly return and paid over to HMRC. Your payroll system must handle this separately from PAYE payroll.

Employee vs subcontractor status: Construction businesses commonly engage both employees (on PAYE) and subcontractors (via CIS). The distinction matters enormously — employee rights, tax treatment, and employer obligations are completely different. And HMRC scrutinises this distinction carefully in construction.

Site-based working and allowances: Construction workers often receive site-specific allowances — travel, subsistence, accommodation. These have specific tax treatment and need to be processed correctly through payroll.

Project cost allocation: For construction businesses managing multiple projects, knowing the payroll cost attributable to each project is essential for profitability tracking and client billing. Your payroll system needs to allocate labour costs by project.

ERA 2025 in Construction

Construction is a sector where zero-hours and casual employment arrangements are common. ERA 2025's guaranteed-hours reforms require construction employers to review arrangements where workers consistently work regular patterns despite nominally flexible contracts.

The unfair dismissal qualifying-period change also affects construction site workers. Unfair dismissal still requires two years' service, dropping to six months for dismissals on or after 1 January 2027 — there is no day-one right — and with high turnover and short-tenure engagements common in the sector, this warrants careful management ahead of the 2027 change.

Mellow for Construction Businesses

Mellow handles construction-specific payroll requirements:

- CIS subcontractor management: Verification, deduction calculation, and monthly CIS return reporting

- PAYE for employees: Full employee payroll alongside CIS for subcontractors

- Site allowances: Travel, subsistence, and accommodation allowances with correct tax treatment

- Project cost allocation: Payroll costs tagged to projects for reporting

- Right-to-work and DBS: Tracked for all workers

- Variable hours: Project-based and variable hours handled in payroll calculations

For construction businesses managing their own accounts, Accounted integrates with Mellow and supports CIS for subcontractors — connecting payroll, CIS, and bookkeeping in one workflow.

[Start a free trial of Mellow](https://mellowhr.com/trial) — or speak to us about construction-specific requirements.

Related reading: Employee vs subcontractor — employment status in construction | Zero-hours reforms under ERA 2025 | HMRC payroll compliance guide