You're a labourer. You work hard. Now you need to decide how you get paid. You'll usually hear about two main ways: CIS or PAYE. Both have their upsides and downsides. This guide helps you understand the differences. It'll show you which might be better for your situation.
What is PAYE?
PAYE stands for 'Pay As You Earn'. When you work PAYE, you're an employee. Your employer sorts out your tax and National Insurance (NI). They deduct it from your wages each payday. Then they send it to HMRC. This means you get your money after these deductions. Your payslip shows everything clearly.
Benefits of PAYE
You get employment rights. This includes things like holiday pay, sick pay, and maternity or paternity leave. Your employer also pays into a workplace pension for you. You don't need to worry about saving for tax or NI. It's all handled for you.
Drawbacks of PAYE
You might have less flexibility. You usually work set hours for one employer. You can't claim many work expenses against tax. Your take-home pay might seem lower than CIS. This is because all your tax and NI is taken straight away.
What is CIS?
CIS stands for 'Construction Industry Scheme'. If you work under CIS, you're usually self-employed. You're a subcontractor. The contractor you work for doesn't pay you like an employee. Instead, they make a deduction from your pay. This deduction is an 'advance' payment towards your tax and NI.
If you're registered with HMRC for CIS, the contractor deducts 20% from your payment. If you're not registered, they deduct 30%. You then need to do a Self Assessment tax return each year. This is where you declare your income and expenses. You work out your final tax and NI bill. The money already deducted by the contractor counts towards this bill.
Benefits of CIS
You have more flexibility. You can work for different contractors. You can often choose your hours. You can claim a wider range of business expenses. This can reduce your overall tax bill. You might feel you have more control over your finances.
Drawbacks of CIS
You don't get employee rights. This means no holiday pay, no sick pay, no employer pension contributions. You must save money for your tax and NI. You also need to save for your own holidays and sick days. You're responsible for your own accounting. You need to keep good records of your income and expenses.
The Big Differences: Holiday Pay and Sick Pay
This is a key difference. As a PAYE employee, you get paid holidays. Your employer accrues this for you. It's usually equivalent to 12.07% of your hourly rate. When you take time off, you still get paid. You also get Statutory Sick Pay (SSP) if you're too ill to work. This helps cover lost earnings.
As a CIS subcontractor, you don't get paid holidays. You don't get SSP. You need to manage your own time off. This means you must save money from your earnings to cover holidays. You also need a plan if you get ill and can't work. This is a big financial responsibility.
Worked Example: £150 a Day
Let's look at what you might take home. We'll use a day rate of £150. You work 5 days a week. That's £750 gross pay per week.
PAYE Employee
- Gross weekly pay: £750.
- This £750 includes your holiday pay entitlement. You'll get paid when you take your holidays.
- Your employer deducts Income Tax and Employee National Insurance (NI) before you're paid.
- What comes off depends on your tax code, the personal allowance and the NI thresholds for the current tax year. Those change most years, so we won't quote a figure that goes stale. Put your day rate into HMRC's estimate your income tax tool for a current number.
- Take-home: gross pay, minus Income Tax, minus employee NI. Lower than the CIS figures below, but it already covers your holidays and sick pay.
- Your employer also pays Employer National Insurance. This is an extra cost for them. It means the total cost of employing you is higher than just your gross wage.
CIS Subcontractor (Registered)
- Gross weekly payment: £750.
- The contractor deducts 20% for CIS. That's £150 (£750 x 0.20).
- Immediate take-home: £600.
- You still need to pay your Income Tax and National Insurance (Class 2 and Class 4) at the end of the tax year. The £150 already deducted counts towards this. You must put money aside for this. You also need to save for your own holidays.
CIS Subcontractor (Unregistered)
- Gross weekly payment: £750.
- The contractor deducts 30% for CIS. That's £225 (£750 x 0.30).
- Immediate take-home: £525.
- You still need to pay your Income Tax and National Insurance. The £225 deducted counts towards it. Being unregistered means a bigger deduction upfront. Registering for CIS is simple and saves you money each week. Do it through HMRC's website.
Other Considerations
Pensions
As a PAYE employee, your employer must automatically enrol you into a workplace pension scheme. They also contribute money to it. This helps you save for retirement.
As a CIS subcontractor, you're responsible for your own pension. You need to set up a private pension. You must make all the contributions yourself.
Training and Development
Some PAYE employers offer training courses. They might pay for your CSCS card renewal or other qualifications. This helps you develop your skills.
As a CIS subcontractor, you usually pay for your own training. You can sometimes claim these costs as business expenses. This reduces your taxable profit.
Employment Rights
PAYE employees have legal rights. This includes protection against unfair dismissal. You get statutory notice periods. You have the right to a safe workplace under HSE rules. You can join a union.
CIS subcontractors have fewer employment rights. You're a business, not an employee. Your contract is commercial. You don't have the same protections. You're responsible for your own health and safety, though contractors must still ensure a safe site.
How to Check a Job Offer
Always ask clearly how you'll be paid. Don't assume. A good job advert or conversation will state 'PAYE' or 'CIS'. If it's not clear, ask the agency or contractor. Get it in writing if you can.
For PAYE jobs, ask about holiday entitlement. Ask about sick pay policy. Check if there's a pension scheme. Understand your working hours and notice period.
For CIS jobs, confirm the deduction rate. Ask if they pay weekly or monthly. Clarify payment terms. Make sure you understand your responsibilities for tax and NI. Ensure you have public liability insurance. You'll need it as a self-employed person.
Look at live jobs on LabourBase AI. They clearly state the payment terms. Compare different roles. See what suits you best.
Choosing between CIS and PAYE depends on your needs. Think about stability, benefits, and control. If you want security and less admin, PAYE might be better. If you prefer flexibility and managing your own finances, CIS could suit you. Make an informed choice for your career.