1. PAYE Workers

A PAYE (Pay As You Earn) worker’s earnings are subject to income tax and National Insurance contributions (NIC).

Many workers are engaged on a PAYE basis. While some choose this payment method voluntarily, anyone falling under the Supervision, Direction and Control (SDC) rules must be paid as a PAYE worker. In the construction industry, this often includes Labourers, Trade Mates, and Skilled Labourers.

All PAYE workers are covered by the Agency Workers Regulations (AWR), which provide:

• Day one rights (e.g., access to shared facilities)
• 12-week rights relating to pay and conditions, confirmed by the end client and passed on to the supplying agency

2. Self-Employed Contractors (CIS)

Self-employed contractors in construction are typically registered under the Construction Industry Scheme (CIS) and hold a valid Unique Taxpayer Reference (UTR). They usually operate as sole traders rather than through limited companies and are often skilled, qualified professionals.

Before engaging a worker as self-employed, it is essential to confirm with your agency that SDC does not apply. Where SDC is absent, the worker is free from supervision, direction, or control in how they perform their duties, making them eligible for genuine self-employment.

Grove Site Services 5 Step Verification Process

1. Confirm with the client whether SDC will apply.
2. Have the contractor complete a self-employment questionnaire.
3. Payroll partners repeat these checks during registration.
4. Verify the trade against HMRC’s Employment Status Indicator (ESI) and record the ESI reference.
5. Provide a trade-specific job description for the self-employed role.

3. PAYE Umbrella Workers

Many flexible workers are unfamiliar with how umbrella company engagements work, often due to a lack of clear communication.

If a worker’s payment method changes from self-employed (CIS) to PAYE via an umbrella company without an adjustment to their pay rate, their take-home pay will decrease.

Important: Workers under SDC rules cannot be self-employed and must be paid via PAYE.

When a worker is moved to a PAYE umbrella arrangement, both the client and the worker must understand the impact on net pay.

4. IR35 Rules

4.1 Overview

The public sector IR35 reform in 2017 and the private sector reform in April 2021 shifted responsibility for determining IR35 status to the client (unless the client is a small company).

A small company, as defined in sections 382 and 383 of the Companies Act 2006, meets at least two of these criteria:

• Annual turnover of £10.2 million or less
• Balance sheet total of £5.1 million or less
• 50 employees or fewer

Small companies are exempt from IR35 payroll rules when engaging LTD/PSC contractors but must provide a written declaration of exemption to their agency.

4.2 Inside IR35

If an assignment is inside IR35:

• The worker is taxed similarly to a PAYE employee.
• They cannot access the tax benefits of operating via a limited company.
• The fee payer (organisation paying the PSC) must:
  • Submit PAYE RTI to HMRC
  • Deduct PAYE tax and employee NICs
  • Pay Employers’ NICs

The client is responsible for the tax liability and may face significant fines if they fail to take reasonable care in determining IR35 status.

4.3 Outside IR35

A worker is outside IR35 when operating as a genuine business. This allows them to:

• Pay themselves a salary
• Draw dividends from company profits
• Manage their own tax affairs

Requirements for Outside IR35 Status:

1. Correct contractual arrangement between the client and worker
2. Completion of the CEST test with an “outside IR35” result
3. A Status Determination Statement (SDS) issued to the full supply chain
4. Evidence that the worker is genuinely in business

HMRC’s 10 Key Factors for Outside IR35:

1. Control and Direction
2. Personal Service / Substitution
3. Mutuality of Obligation
4. Provision of Equipment
5. Financial Risk
6. Regularity of Payment
7. Part and Parcel
8. Exclusive Service
9. Intention of the Parties
10. Operating as a Genuine Business

This unified structure means clients, agencies, and workers can clearly compare engagement methods, understand compliance requirements, and see how pay is calculated.