✦ Sector
Construction payroll: CIS, subcontractors and the software gap
Construction payroll software has to run PAYE for employees and CIS deductions for subcontractors side by side, often for the same workforce on the same job, with hours that vary week to week and site to site. Generic payroll tools handle PAYE well and CIS poorly, or not at all. Here's the gap, and what to do about it.
Haystak · 12 August 2026 · Updated 12 August 2026 · 8 min read
Construction payroll software needs to run two parallel systems at once: PAYE for direct employees, and Construction Industry Scheme (CIS) deductions for subcontractors, often across the same sites and sometimes the same trades in the same week. Most generic payroll software is built almost entirely around PAYE, which leaves CIS handled by an add-on, a separate system, or a spreadsheet run alongside it.
The result is that construction payroll is rarely one process. It's PAYE payroll, CIS subcontractor payments, and time capture from site all needing to reconcile against each other, and the software gap is usually in how well - or badly - those three things talk to one another.
Why construction payroll is genuinely different
| Factor | Why it complicates payroll | What generic software usually misses |
|---|---|---|
| Mixed workforce | Employed staff (PAYE) and subcontractors (CIS) often work the same sites and weeks | A single system that runs both processes together rather than as separate exercises |
| CIS verification and deduction | Subcontractors must be verified with HMRC and taxed at the correct rate | Native verification and deduction calculation, rather than a manual lookup and spreadsheet |
| Variable hours and site allocation | Hours vary by site, week and weather, and need to map to job costing | Time capture that's linked to both payroll and job cost codes at once |
| Gross payment status | Some subcontractors are paid gross rather than net of deduction, and status can change | Straightforward tracking of a subcontractor's current status and any changes to it |
| Statutory returns | Monthly CIS returns to HMRC on top of standard PAYE reporting | Built-in, return-ready reporting rather than manual compilation |
PAYE and CIS running side by side
The core difficulty is that PAYE and CIS are legally and procedurally different processes bolted together in practice. PAYE payroll software is mature and widely available; CIS handling is much more variable in quality even among products that claim to support it. A contractor running both from the same platform benefits from one source of truth for who's been paid what, on which job, at which rate. Running them from separate systems means someone has to manually reconcile total labour cost across both before it means anything for job costing.
CIS verification and deduction, done properly
Under the Construction Industry Scheme, contractors must verify subcontractors with HMRC before paying them, deduct tax at the correct rate (0%, 20% or 30% depending on registration and verification status), and file a monthly return. This isn't optional, and getting it wrong creates direct compliance exposure rather than just an administrative headache. Software that handles verification and deduction natively, and keeps a clear record of each subcontractor's current status, removes a meaningful amount of manual risk from what is otherwise an easy process to get slightly wrong at volume.
Linking payroll to job costing
Payroll data is one of the four main inputs into construction cost management, and it's usually the one with the worst lag if hours are still processed weekly from paper timesheets. The closer payroll and time capture sit to real time, and the more directly labour cost maps to job and cost code, the more useful budget vs actual reporting becomes. This is also directly tied to how time tracking software for construction is set up - time capture, payroll and job costing genuinely work best as one connected process rather than three separate ones stitched together at month end.
- One system, or at least one reconciled source of truth, for both PAYE and CIS labour cost per job.
- CIS verification and deduction handled within the system rather than via a manual HMRC lookup each time.
- Time capture linked to payroll and job cost codes at the point of entry, not reconstructed afterwards.
- A clear, current record of each subcontractor's registration and gross payment status.
Off-the-shelf, add-on, or bespoke
Several payroll providers now offer genuine CIS support alongside PAYE, and for many contractors that combination is the sensible starting point rather than anything bespoke. The case for something more tailored usually comes from needing payroll to connect properly to job costing and time capture - most standard payroll tools are built to run payroll well, not to feed a live cost management view, and that link is often where the real value sits for a growing contractor.
This decision sits within the same broader question covered in construction software for contractors: whether to assemble best-of-breed tools with integrations, or invest in something built to fit your actual workforce mix and reporting needs.
If PAYE, CIS and time capture currently live in three different places in your business, get in touch and we'll talk through what connecting them properly would actually take.
✦ Where this fits
More on this from us: Construction software.