A payroll company, in general, is a service provider that either assists or manages the entire payroll operation for another business. They ensure that both employees and taxes are paid accurately and on time.
In regards to CIS Payroll, there are some particular differences that set it apart. We spoke to our director and co-founder of EEBS, Nick Pilgrim to break down some of the most frequently asked questions regarding the role of payroll companies in the construction industry, particularly how they work within CIS.
Where does a CIS payroll company sit between a contractor and a subcontractor?
There are three types of providers:
- A simple payroll service, which will just do some payroll admin for a contractor.
- A labour-only provider, a bit like an agency that will step into the arrangements and act like an agent, further reducing the admin for the contractor.
- A full-blown contracting intermediary such as EEBS, where we become the client's subcontractor and engage the tradesmen directly as our own subcontractors. This creates an impenetrable firewall for the client from any revenue reclassification of those individuals as employees.
What are the key advantages for contractors in outsourcing their CIS payroll to a construction payroll company?
The outsourcing of those types of services can come with a number of benefits. If a contractor simply uses a CIS payroll service, it's a small reduction of his administration, and that's about it. But with a fully outsourced arrangement such as ourselves, it completely reduces most of the CIS admin. Now, under normal circumstances, if the contractor is paying tradesmen directly, he has to submit a monthly CIS300 with all of the payments to those subcontractors listed on it. He has to send each one of those a CIS deduction statement once a month, and he also has the responsibility of managing their employment status in light of a revenue investigation.
The advantage of outsourcing to a payroll provider such as EEBS, which provides a full outsourcing arrangement, is that we take on all of most responsibilities. The only admin that the client has to do is send us weekly information for our subcontractors, usually via our portal, and submit one entry on their CIS300, which is EEBS only.
How does EEBS, as a construction payroll company, keep up to date with HMRC regulations and industry-specific requirements?
We use who I believe to be the country's leading experts in tax advice. We also subscribe to a number of high-quality sources, which provide us with all the information and, more importantly, much of the analysis around tax law and case law. So, when a case goes through the tribunals or the courts, we get a breakdown of the impact and implications of those cases on our business model for our clients.
Could using a CIS Payroll Company streamline your administrative processes, such as ensuring accurate tax calculations and handling payments to subcontractors?
Using a contracting intermediary allows contractors to be good at what they're good at, and it allows us to be good at what we're good at. So it removes much of the admin for the contractor, reduces their stress levels, allows them to get on with their core tasks and outsources responsibility to people who have been doing it for 23 years.
What role does a construction payroll company play in mitigating the risks associated with the arrangement?
It depends on the type of arrangement that's in place. If a contractor is merely using a payroll provider to do some of the admin for him, the relationship between the subcontractor and that contractor remains the same, which will always be subject to investigation from the Revenue.
If they use a labour provider, that creates some form of barrier, but very often, the Revenue will challenge those arrangements.
Whereas with the fully outsourced arrangements that a client has with EEBS, because we have been investigated by HMRC and we have 50-plus clients who have all been through Revenue investigations whilst using our services, without the Revenue ever challenged our arrangements this guarantees that we are CIS and Revenue-compliant.
Does a contractor need a minimum number of subcontractors to engage a payroll company such as EEBS?
We engage every number from one to two hundred subcontractors. That's our business model, it doesn't matter the size. We're a high-volume, low-margin business.
How does a payroll company differ from an umbrella company?
Usually, Umbrella companies engage individuals under employment contracts and pay them through PAYE. Whereas for the EEBS outsource model, we engage genuinely self-employed subcontractors and go to significant lengths to ensure they remain self-employed. Now, umbrella companies in the past have had a very poor reputation for manipulating charges to individuals and dramatically reducing the take-home pay compared to their headline rate of pay. Very often, an umbrella company would be levying deductions under different labels up to 40% of the earnings of an individual. Whereas ours is a transparent process, and everybody knows what the fees are and it's much, much, much lower than that.
