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Formalising construction hiring means documenting the real working relationship before work starts, choosing the correct tax route, completing pre-start checks and maintaining records for the required periods. The crucial first decision is whether the particular engagement is employment, worker status or genuine self-employed subcontracting. Calling someone a “subcontractor”, or pointing to their previous CIS history, does not settle that question.
For an employee, operate PAYE and provide the required written employment particulars. For a qualifying self-employed construction subcontractor, register and operate the Construction Industry Scheme (CIS) where the rules apply. A person can also have worker status, which brings specific employment rights even though the tax treatment and contract may differ. This guide sets out a practical UK-wide process; employment law details can differ between jurisdictions, so check the rules applying where your business and workers operate.
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Start with the engagement, not the label
HMRC says status is determined under common law and by the terms of the particular engagement. Its CIS 340 guide, updated 27 August 2026, puts the point plainly: “The fact that the subcontractor has worked in a self-employed capacity before is irrelevant in deciding on their employment status — it is the terms of the particular engagement that matter.” Assess the arrangement when the person is first engaged and revisit it if the working reality changes.
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Before agreeing a start date, write down the facts that describe the job. Include the scope and location, expected start and finish, pay basis, working pattern, who supervises the work, how much control the business exercises, who supplies tools and materials, whether the person can provide a substitute, and who carries the commercial risk. No single fact decides status. The record should show how the arrangement will operate in practice, rather than simply reproduce a preferred contract label.
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Indicators that need careful consideration
- Whether the individual bids for work and can accept or refuse assignments.
- Whether they work without direct supervision or are integrated into your day-to-day team.
- Whether they invoice for completed work and correct defects at their own cost.
- Who is responsible for tax and National Insurance.
- Whether holiday pay, sick pay or other employee benefits are provided.
- Whether the person is exposed to a genuine opportunity to make a profit or suffer a loss.
HMRC describes these as useful indicators, not a points-based test. Keep a short written status assessment explaining the facts and the conclusion, then retain evidence such as the agreed scope, correspondence, invoices and any later change in working arrangements.
Choose PAYE, CIS or a worker arrangement
Once the facts are recorded, select the route that matches them. Do not make the decision solely because a worker asks to be paid gross or because another contractor has used CIS for similar work.
| Question | Employee | Worker | Self-employed construction subcontractor |
|---|---|---|---|
| Core relationship | Works under an employment relationship with the business. | Provides personal work or services with some employment rights, but is not necessarily an employee. | Runs an independent business undertaking the particular construction engagement. |
| Typical tax administration | PAYE payroll, with deductions and reporting by the employer. | Tax treatment depends on the facts; do not assume CIS or PAYE from the title alone. | CIS applies where the engagement and parties fall within the scheme. |
| Evidence to keep | Written particulars, payroll and personnel records. | Written particulars and records of the rights and arrangements that apply. | Status reasoning, verification result where required, payment and deduction records, and subcontractor statements. |
| Main risk of misclassification | Unpaid PAYE, National Insurance and employment rights. | Loss of statutory rights or incorrect tax treatment. | Incorrect CIS deductions, returns and potential penalties. |
If the relationship is employment, the person is not a CIS subcontractor for that contract. If it is a qualifying self-employed construction subcontract, follow CIS requirements. If the facts indicate worker status, document the applicable rights rather than forcing the person into an employee-versus-subcontractor binary.
Give employees and workers the right written information
For employees and workers, provide the principal statement of employment particulars on the first day of employment. It should identify:
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- the employer and the worker;
- the job title or a description of the work;
- the start date and, where relevant, the expected duration;
- pay rate, method and frequency;
- normal hours, working days and how those hours may vary;
- holiday entitlement and how holiday pay is calculated;
- the normal place of work and any required travel;
- probation arrangements;
- benefits; and
- mandatory training and who pays for it.
Provide wider particulars, including pension arrangements and procedures, within two months. When a term in the statement changes, notify the worker within one month. Keep a dated copy showing what was issued and when, and obtain confirmation of receipt where your process allows.
Make the statement reflect site reality
Construction work often moves between sites or changes with a project phase. State how locations, travel, shifts and overtime are handled instead of using wording that conflicts with actual practice. If supervision, substitution, payment or equipment arrangements change materially, update the status assessment as well as the written terms.
Complete pre-start right-to-work checks
For covered working arrangements, complete the prescribed Home Office right-to-work check before the person starts. Use the official procedure and acceptable document or online method in force at the time; these can change. The Home Office employer checklist updated 1 October 2026 requires a secure record of the date the check was made and secure copies of the evidence.
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Register and operate CIS when it applies
A business paying construction subcontractors must register as a CIS contractor before taking on its first subcontractor. A business that does not itself carry out construction work can also come within the registration rules after spending more than £3 million on construction in the specified 12-month period since its first payment. The threshold is a legal trigger, not a spending target; check the current HMRC scope, exclusions and definition of construction work for your business.
Build a subcontractor file
For each subcontractor, retain:
- the engagement-specific status assessment and supporting facts;
- the HMRC verification result where verification is required;
- the agreed payment basis and bank or payment details;
- materials costs and other amounts that affect the deduction calculation;
- gross payment, deductions and net payment records;
- the statements supplied to the subcontractor; and
- references to the relevant monthly returns and any corrections.
HMRC requires contractors to consider employment status, verify subcontractors where required, make the appropriate deductions, file returns and keep records. The CIS 340 guide states that CIS records must be kept for at least three years after the end of the tax year to which they relate. Set a disposal date for each tax year and suspend deletion if an enquiry, dispute or legal hold requires longer retention.
Plan for monthly filing
From 6 April 2026, the nil-return obligation was reinstated for mainstream contractors. When no subcontractors were paid, file a nil return or notify HMRC of a period of inactivity using the route and timing specified for your contractor category. Do not let an empty month disappear from the compliance calendar; assign ownership and retain evidence of the submission or inactivity notification.
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Use a controlled personnel and project records system
Keep records in a controlled system rather than scattered personal inboxes or site folders. A practical file structure is:
- Engagement and status: scope, location, start date, working pattern, supervision, substitution, equipment, commercial risk and the written status reasoning.
- Identity and eligibility: contact details, payment details and the right-to-work check record where applicable.
- Terms: signed contract or written statement, amendments, probation outcome and benefits.
- Pay and tax: payroll records for employees, or CIS verification, deductions, statements and returns for subcontractors.
- Operational evidence: training completed, relevant absence or incident records, timesheets and approvals that demonstrate how work was actually organised.
GOV.UK guidance on personal data says employers must keep personal information safe, secure and up to date and should not retain it longer than necessary. Apply access controls, encryption or equivalent safeguards, an audit trail for changes and a documented deletion schedule. Do not impose one blanket period on every document: the right-to-work rule and CIS rule above are specific, while other records need a retention period justified by their purpose and the law that applies.
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- Define the role. Write the scope, site, dates, pay basis, hours, supervision, equipment, substitution and risk allocation before agreeing terms.
- Assess status. Compare the planned and expected real-world arrangement with the employee, worker and self-employed indicators. Record the reasoning and who approved it.
- Select the route. Put employees through PAYE, apply the worker terms that fit the facts, or use CIS only for a qualifying subcontract engagement.
- Issue terms. Give the principal statement to an employee or worker on day one, provide wider particulars within two months and record changes within one month.
- Complete eligibility checks. Finish the prescribed right-to-work check before the start date and store the dated evidence securely.
- Set up administration. Register for CIS before the first subcontractor where required, establish payroll or CIS responsibilities and create the file structure.
- Run each pay cycle. Approve hours or completed work, verify subcontractors where required, calculate deductions, pay the correct amount, issue statements and submit the relevant return.
- Review changes. Reassess status when control, substitution, payment, tools, location or project scope changes. Amend terms and notify the worker when required.
- Close and retain. Record the end date, settle final pay or CIS amounts, preserve required evidence and apply the category-specific retention schedule.
Common failure points and fixes
“They have always been self-employed”
Previous self-employment or CIS registration is irrelevant to the current engagement. Re-perform the assessment using the facts of this job and retain the explanation.
“The contract says subcontractor, so CIS is safe”
A label cannot override the working reality. Compare supervision, control, substitution, financial risk and integration with what actually happens on site. If the facts indicate employment, use PAYE and employee documentation.
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Missing day-one particulars
Do not wait for a payroll setup or a site induction pack. Issue the principal statement on the first day, then track the wider particulars and later amendments separately.
Right-to-work evidence stored in an open site folder
Move copies to a restricted personnel system, record the check date and apply the two-year post-employment retention rule from the Home Office checklist.
Quiet CIS months treated as no filing required
Check whether the reinstated nil-return or inactivity-notification rule applies to your category from 6 April 2026, and retain proof of the action taken.
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One retention period for everything
Separate right-to-work, CIS, payroll, contract and operational records. Apply the specific periods that govern each category and document why other records are kept or deleted.
What good evidence looks like in an audit
An auditor or HMRC officer should be able to follow one person from engagement decision to payment. The file should show who decided the status, which facts were considered, what terms were issued, when eligibility was checked, how pay was calculated and where each return or statement was submitted. For a subcontractor, the payment trail should reconcile the agreed work, materials information, deductions, net payment and subcontractor statement. For an employee or worker, the written particulars, payroll records and amendments should align with the way the person worked on site.
Review the process at least when your business takes on a new type of trade, changes supervision or payment practices, or enters a new jurisdiction. Official guidance is volatile, so confirm the current CIS filing instructions, penalty provisions, employment-status guidance and right-to-work procedure before relying on an old checklist.
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