What are the different types of Construction Payroll Services?

Construction payroll services is an overarching term, and the phrase can refer to a number of different arrangements.

These can include a simple payroll bureau which removes some of the administration from the client, but crucially, leaves them with all of the legal responsibilities – especially when dealing with the Revenue investigations.

There will also be umbrella companies who will take on some workers and engage them under PAYE arrangements, then look to mitigate the costs of those arrangements by taking advantage of the expense’s regimes; these are notoriously costly for the individuals who often have no choice in the use of the company, and are almost always linked to employment agencies.

Then there are genuine sub-contracting businesses (intermediary) like EEBS who take on the full engagement of the subcontractors, maintain their self-employed status and supply the clients as a subcontractor to the client. This usually requires the companies concerned to be within the Construction Industry Scheme, and it’s aimed squarely and exclusively at the Construction Industry.

What are the benefits of using an Intermediary like EEBS for your CIS Payroll? 

The engagement of a Bona-fide construction intermediary provides a number of benefits for a contractor; flexible labour supply, reduced admin and cost avoidance being the . The cost of PAYE is generally 40%+, compared to engaging individual self-employed sub-contractors, and if you have to take on a permanent workforce, it’s very difficult to match your workload to your workforce. Working with the flexibility that comes with an intermediary is one of the key aspects of using that type of arrangement, and keeping that workforce cost effective is the other!

Where do Umbrella Companies fit within construction payroll services? 

In June, a long-awaited consultation paper was published by the government for umbrella companies to be brought under the control of the Employment Agency Standards Inspectorate. There’s a lot of history around the whole intermediary sector with agencies and all those types of intermediary suppliers, so let’s take you through what’s been there before, why the regulations have been introduced and what’s changed.

Employment businesses have been around for decades, and the different descriptions for these businesses often cause confusion – Employment businesses, Employment agencies, Recruitment agencies etc – but the distinction is quite straight forward, as there are only two real differences:

Employment agencies work for the client to usually find and supply temporary workers, whereas Recruitment agencies work to place an individual in a permanent role with an employer. Once the Recruitment agency has placed the individual then generally the relationship is over, whereas an Employment agency will look to have a long-term relationship with both client and worker. And they exist really for two simple reasons: firstly, to provide individuals with flexible working arrangements; many people don’t want or can’t take full-time employment and working through an agency will often provide them the flexibility that they need to balance their work and home lives together.

Secondly, they exist for businesses: most businesses that use agency workers will have a core of employees and they’ll manage the peaks and troughs of their workload with agency workers, so it allows both parties to maintain flexibility.

Umbrella companies grew to take on the legal responsibilities and payroll management services for many of these agencies, who lacked the expertise to manage these responsibilities internally in areas of ever-increasing legislation and compliance. The construction industry has always had a strong agency sector, hence the rise of Umbrella companies who provide construction payroll services.

As you might imagine, whilst there is lots of administrative legislation to deal with, the sector is actually very lightly regulated – and as not all players in the intermediary field are squeaky clean, inevitably certain abuses have taken place in the past – principally around extortionate and undocumented fees, charges or costs, or the lack of proper information – hence the push for the sector to come under the scrutiny of the inspectors – a move that the compliant amongst us welcome!

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The alternative – how specialist construction (Intermediaries) payroll services like EEBS operate:

In terms of the construction industry, obviously, there are plenty of agencies out there, but because of its own specialist tax regime, there is a small group of companies who provide a contracting intermediary type of arrangement for the construction industry. The purpose of which is to maintain the self-employed status of the tradesman that it engages and we, EEBS are obviously one of the key players in that marketplace. It’s significantly different to payroll bureaus, who simply provide payroll services, and they can be industry-wide.

As we said, a payroll bureau will provide no protection in terms of employment status to its clients; it simply reduces some of the payroll and admin workload for the business concerned, but the legal responsibilities remain that of the business. Whereas with EEBS, we are a genuine construction industry contractor and subcontractor, as determined by the makeup of our contracts. We engage genuinely self-employed subcontractors who provide us with a construction service; they’re verified with HMRC by EEBS and we supply a construction service to our clients, which may, or may not include provision of labour or labour and materials. There are a number of different arrangements that have been out there in the past but for construction. However, by far and away the best solution for construction companies to secure the correct employment status of their self-employed tradesmen, is to use a company that’s been around 23 years, has had over 50 Revenue inspections and never been challenged, has had great write-ups… and is super-duper thank you very much!

With construction payroll services, how could someone recognise the difference between genuine services, and umbrella companies? What kind of thing are they looking for?

Okay, so an umbrella company nowadays almost exclusively engages all of its workers under PAYE contracts, and tries to mitigate the tax element by taking advantage of the expense’s regime. And the controls on that have been very much tightened up by the Revenue over the last eight or ten years, but they still exist and they are still an alternative. Whereas at EEBS we are a genuine subcontract business that maintains the self-employed status of our tradesmen. We are a low-margin, high-volume business. So, in terms of fees for umbrella companies, they will quite often have high costs that they pass on to the individuals, which ends up significantly reducing their take-home pay. Whereas some of our clients pass on their fees to our tradesman, but it’s a very small fee in comparison to what an umbrella company will be charging.

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Nick Pilgrim

M.D. | CIS Payroll Expert
01245 493832

Nick loves nothing more than chewing the fat over CIS payroll queries – actually that’s not strictly true; he likes playing golf and driving round Europe, but pick up the phone to him anyway!

Who are we, anyway?

EEBS clients are covered by our cast iron guarantee, providing you with 100% HMRC compliance

Our ongoing review process to keep them one step ahead of both current and proposed legislative changes

Uniquely, our service has never been challenged by HMRC in over 20 years of operations.