Construction companies therefore need to consider three separate issues together: payroll cost planning, correct CIS operation, and employment status compliance.

The April 2026 National Living Wage & National Minimum Wage rates

From 1 April 2026, the National Living Wage for workers aged 21 and over rises to £12.71 per hour. The 18 to 20 rate rises to £10.85 and the 16 to 17 rate rising to £8.00. The apprentice rate also rises to £8.00, but this applies only to apprentices aged under 19, or those aged 19 and over who are in the first year of their apprenticeship.

For many contractors the direct impact will fall on general labourers, trainees, apprentices, yard staff, cleaners and administrative employees paid at or close to the statutory floor. Site managers, estimators and skilled tradespeople paid above the minimum wage may not be directly affected, although wage compression often means employers still need to adjust pay scales above the minimum to preserve sensible differentials.

What is National Living Wage ?

The National Living Wage is the minimum hourly rate of pay that most workers aged 21 and over are legally entitled to receive in the UK. It is set by the government and reviewed annually, with rate changes usually taking effect from April each year

Construction Business under National Living Wage

The National Living Wage is not a CIS charging rule. It is a labour standards rule. CIS, by contrast, is a tax withholding regime for payments to subcontractors in the construction industry.

That distinction matters. A construction business can pay an employee or other worker through PAYE and must then consider minimum wage compliance. Separately, it can pay a genuine self-employed subcontractor under CIS, and, subject to correct verification and deductions, the minimum wage legislation will usually not apply to that person because they are not working as a worker for the business in the relevant legal sense.

Is CIS Status not the Same as Employment Status

HMRC’s CIS guidance makes clear that CIS deals with how payments to subcontractors for construction work are handled. It does not convert an individual into a self-employed person simply because deductions are being made under CIS.

Employment status has to be tested by looking at the facts. HMRC’s Employment Status Manual lists relevant factors including control, personal service, equipment, financial risk, basis of payment, mutuality of obligation, integration into the organisation and the parties’ intentions. No single factor is decisive, and the written contract is not enough on its own

The Disguised Employment Risk in Construction

Where a business engages labour as CIS subcontractors but the reality points to worker or employee status, the consequences can be wider than underpaid tax alone. Depending on the facts, the business may face retrospective PAYE and employer NIC liabilities, National Minimum Wage underpayment issues, holiday pay claims, pension auto-enrolment exposure and, in some cases, other employment rights claims.

The label “subcontractor” is not enough on its own. Construction businesses should review the real working relationship, including who controls the hours, location and sequence of work, whether there is a genuine right of substitution, who bears the cost of defective work, whether the individual is pricing a job or simply providing labour at a day or hourly rate, and who provides the tools and plant.

April Payroll Cost Impact: Wage Rise plus Employer NIC Pressure

For budgeting purposes, contractors should not look at the 1 April 2026 wage increase in isolation. It sits on top of the employer National Insurance regime introduced from 6 April 2025, under which the employer secondary rate increased to 15% and the secondary threshold fell to £5,000. The Employment Allowance also rose to £10,500, subject to eligibility, although single-director companies with no other employees remain ineligible.

That means every additional pound of PAYE pay above the relevant threshold can carry a higher on-cost than many businesses were used to before April 2025. In other words, the 2026 wage increase is being absorbed within a payroll system that is already more expensive on the employer NIC side.

Managing CIS & Employment Status Compliance

• Review labour models before April payroll is processed. Separate PAYE employees, agency labour and CIS subcontractors. Do not assume that historical treatment is correct just because it has “always been done that way”.
• Check status at the point of engagement and again when arrangements change. A person who starts on a project basis can drift into quasi-employment if they work continuously in the day-to-day direction for a long period.
• Keep contracts aligned with the real facts. Written terms should accurately reflect substitution rights, pricing basis, rectification obligations, responsibility for tools, insurance and commercial risk. A polished contract that does not match site reality has limited value.
• Use CIS correctly, but do not treat CIS verification as a status clearance. CIS verification confirms the deduction rate to apply to a subcontractor, usually 0%, 20% or 30%, based on their CIS registration status. It does not confirm that the individual is genuinely self-employed for employment law or National Minimum Wage purposes.
• Be careful with labour-only arrangements. Labour-only traders working on day rates, using the company’s materials, under direct supervision and with no real right to profit or loss are often the highest-risk group.
• Consider the minimum wage impact where status is doubtful. If a worker is within the minimum wage regime, deductions for items such as tools, uniforms or accommodation can also affect compliance calculations.
• Remember that employment law and tax law do not map perfectly. A person may be self-employed for tax purposes in some cases yet still have worker rights in employment law. Construction businesses should take advice where status is close or contentious.
• Document your decision-making. A short status assessment file for each regular subcontractor can be extremely helpful if HMRC or an employment tribunal later asks why a person was treated as self-employed.

What CIS Contractors themselves Should Know

For individuals working as CIS subcontractors, the key question is whether you are genuinely in business on your own account. If you quote for work, invoice, bear commercial risk, can make a profit or a loss, provide at least some of your own equipment and are not working under close day-to-day control as part of the engager’s workforce, genuine self-employment is easier to support.

But if you simply turn up each day, work fixed hours under supervision, cannot send a substitute, use the engager’s equipment and have no real commercial freedom, you should be cautious about assuming that CIS treatment is correct. In that type of case, the tax and legal position may need review.

If you are unsure, HMRC’s Check Employment Status for Tax tool can be a useful starting point to help assess your tax status, although it should not replace proper advice where the working arrangements are complex or do not reflect the written contract.