When it comes to managing CIS payroll, there are two things that no organisation wants.
The first is a disgruntled workforce, and the best protection against this is making payment on time, in full, every time.
The second is to attract the attention of HMRC. Here, the best protection is compliance and diligence throughout the payroll process.
This article introduces eight common payroll issues and offers advice on how to avoid them befalling your business. If you need a primer on CIS before diving in, look here.
1. Human error
An old saying goes, “to err is to be human.”
With human employees at the heart of every business, the risk of error is always present. This is especially true when recording hours worked, resource allocated, payments made, and deductions taken.
By implementing tailored payroll solutions that link together and have streamlined inputs, you can reduce - or even remove - the threat of human error from your processes. Working with a CIS payroll specialist provides access to their systems and processes, which have been designed to be as efficient and error-free as possible.
2. Late or incorrect payment arising from human processing error
When errors are made, they’ll likely impact payment in some way. This can occur from a subcontractor recording their hours worked incorrectly, a member of payroll entering the wrong information resulting in incorrect payment, or one of many other factors.
Whatever the cause, late or incorrect payment quickly sows discontent between contractors and subcontractors. Avoiding such issues is an essential part of maintaining good relations on-site and within projects.
Again, partnering with a CIS payroll specialist offers a clear resolution to this problem, hopefully before it arises.
3. Late or incorrect payment arising from cashflow issues
In the construction industry, large amounts of money move around frequently. Amongst the streams of incoming and outgoing cash, a contractor’s obligation to pay their subcontractors can sometimes suffer from not having the relevant funds on hand when required.
Well-implemented CIS payroll management software, whether internal or via an external agency, offers an elegant solution to this problem by giving clear visibility of outgoing cash flow. This means you’ll have a clearer understanding of upcoming costs, and can plan accordingly to ensure payment is possible.
4. Loss of respect and reputation after errors
As we’ve alluded to in the previous points, getting paid incorrectly is frustrating, and damages the relationship between contractor and subcontractor. This is especially if back-charges and other withholdings are necessary to redress the balance.
By implementing systems and processes that reduce the likelihood of human error, the hope is that loss of respect or any damage to the contractor / subcontractor relationship will be prevented.
Because, as another old saying goes, “prevention is better than a cure.” If you can prevent a problem from happening in the first place, you don’t need to worry about resolving it.
5. Being proactive and staying current with legislation
Tax legislation is by no means fixed, and staying up to date requires ongoing investment in training and education of CIS payroll management staff. When these staff members are in-house, responsibility for this investment - of both time and money - falls at your feet. There’s the chance of falling behind with developments and, when this happens, of risking not being compliant with the new legal obligations on your organisation.
When an external CIS payroll company employs these staff members, however, you can enjoy the peace of mind of knowing that training costs and the onus for ensuring compliance are external.
6. Keeping your payroll software up to date
As changes to tax law and payment processing inevitably occur, payroll systems need to be updated accordingly. The same relationship as above exists here, too: If your payroll is managed in-house, the responsibility to invest in updated software is on you. If you outsource, on the other hand, everything is managed externally. The obligation to update software and accompanying processes falls upon the CIS payroll specialists.
7. Combining different payroll schemes within one organisation
As a contractor, you may employ staff who don’t qualify as subcontractors within CIS. In this situation, you’ll need to operate multiple payroll schemes concurrently.
This situation can also arise when a company hires individuals who qualify as subcontractors under CIS to join their non-subcontractor workforce.
In both cases, operating two payroll schemes - PAYE and CIS, perhaps - can lead to additional confusion for an in-house team, especially if team members are not trained in CIS. By working with external CIS specialists, you remove this potential skill gap entirely.
8. Keeping records in case of an audit
When dealing with HMRC, the stakes are high. If they suspect that your tax affairs are not in order - whether intentionally or otherwise - you may be placed under audit and investigated. This process is costly, both in terms of time and money.
Keeping a watertight paper trail of all payments and deductions for your staff is essential, for two reasons. Firstly, it reveals errors and issues before they compound enough to warrant attention from HMRC - prevention is better than cure, remember.
Secondly, it gives you recourse if an audit were to take place. Being able to prove which payments you made and when provides HMRC the information they need to determine whether your affairs are in order.
When outsourcing CIS payroll management, your provider will keep comprehensive records. They may assume liability for mistakes, too, meaning that any compensatory measures will be their responsibility, rather than yours.
CIS payroll carries a lot of inherent complexity, on top of the complex business of operating in the construction industry.
This article introduced nine common payroll issues and explored how partnering with a specialist CIS payroll service provider can help your organisation to avoid disgruntled employees or the prying eyes of HMRC.
For more information, get in touch.