I bet when you were considering job options, you may not have looked at passing construction workers and thought “I bet they’re making BANK”. Well, if you had, you wouldn’t be wrong! The truth is you can earn great money in construction.
Pay in construction is not quite as straight forward as in other industries. In most other industries you sign a contract, which entitles you to a set amount paid into your bank account every month, some holiday days and benefits such as a pension or health insurance etc. To think about pay in construction you need to think about three different methods of pay: PAYE, CIS & Limited Company. Here is a quick overview of each of these:
The first option: PAYE (Pay as you Earn)
This option is probably most similar to other industries and is the most straightforward. You receive a regular salary or wage from your employer and have tax and NICs deducted from your pay before you receive it. PAYE workers are entitled to certain benefits and protections, such as sick pay and holiday pay. It is a system used by employers in the UK to collect income tax and National Insurance contributions (NICs) from their employees. If you are a PAYE worker in the UK, your employer is responsible for calculating and deducting the correct amount of tax and NICs from your pay. You can check your tax and NICs deductions by looking at your payslips or by using HMRC's online tools.
The second option: CIS (construction industry scheme/’self-employed’)
You as an individual will have to register as a subcontractor with HMRC, after you have done this, you will receive a UTR (Unique Taxpayer Reference) number. 20% tax will be deducted from your pay by HMRC, which can be claimed back at the end of the tax year. If you have not yet registered with HMRC as a subcontractor then you will be ‘emergency taxed’ at 30%, this will go down to 20% after you register. You can claim a portion of this back at the end of the tax year based on your expenses. It is your responsibility to do this - you can do it yourself or pay an account to do it. The cost for using an account varies on who you use, but you can expect to pay around £250 for them to complete the tax return They will usually deduct this payment this from your tax return. The benefit of CIS or self-employed work is that you will earn significantly more when compared to PAYE. You do not receive any benefits or job security as you would with a contract and you only get paid the hours you work. It does however give you a bit more freedom, if for example, you want to take 6 weeks off to go scuba diving in the Caribbean islands you can do that! It must be said it is a gamble and the precarious nature of the work means you can be let go at a moment’s notice, so this can work both ways. We will go into some figures further down so you can see the comparisons in terms of earning potential.
The third option: Limited Company
This option is only worth it if you are a high earner (+£30p/h). In this option you would create a Limited Company with Companies House. 100% of your earnings will be paid into your ‘limited company’ account. Once your limited company receives payment, you will need to pay yourself a salary via a PAYE scheme, it is up to you how much that is and how much to retain to pay dividends. You can pay dividends at any time of year, providing you have enough profits in the company to cover the dividend payment. You will have to pay both income tax and corporation tax and you will need to be aware of the impact of the government’s IR35 legislation (also known as ‘off payroll working’).
So how does PAYE vs CIS pay compare?
It's difficult to provide an average salary for PAYE (pay as you earn) workers in the construction industry in the UK, as salaries can vary widely depending on factors such as your job role, your level of experience, your location, and your employer. However, even through PAYE, construction has maintained its position as one of the highest paying sectors with an average industry salary of £36,259 annually - around 9% higher than the average UK full time salary of £33,000 .
Via CIS the data shows the average UK construction worker day-rate in 2020 is £272 per day and the average hourly-rate is £19.46 per hour. This ranges from £98 per day for Labourers to £400 per day for Construction Manager roles in day-rate positions.
Let’s take the average hourly rate of £19.46 and round it up to a £20 to make it a bit more straightforward to calculate. An average working day in the UK construction is 10 hours per day excluding any overtime. Saturdays are supposedly not compulsory, but the companies will ‘encourage’ you to work them. You will be paid overtime for any work outside the regular working hours so that could be 1.5 times your rate up to two times your hourly rate. Let’s say for this example you get paid 1.5 times your hourly rate on Saturday.
Monday to Friday – 50 hours
Saturday – 5 hours (5 hours x 1.5) = 7.5
So, your average working hours are 57.5 per week, at 20p/h your weekly pay will be £1,150. Your weekly take home will be £1,150 – 20% = £920 per week.
Let’s assume that you work 48 full weeks of the year at 57.5 hours a week. Your yearly total pay (gross) = £55,200 per annum! Your yearly take home will be £44,160 + whatever you get back on your tax return which could be another 1/2k! So, you can see straight away the benefits to being paid through CIS - the average for PAYE is £36,259 (£28,384 after tax) whereas the average for CIS is £55,200 (£44,160 after tax)!
I have factored in a small amount of overtime for this calculation to consider Saturday work (which is normal in the industry). Some projects will require you to work more overtime or even night shifts, etc. If you can find a project like that and are willing to put in a year’s hard graft, you can get a tasty pay-out at the end of it. I know a lot of guys who have used this method to get the money together for a deposit on their first property. So basically, the harder you work the more you get out of it.
Another thing to mention is that it is a lot easier to increase your hourly rate than your PAYE salary. So, the gains when starting off are more beneficial. This of course comes at a big risk as mentioned before CIS workers do not get any benefits! You will need to pay into your own pension and you will not be paid if you are unwell and can’t go in. As a result, I would strongly advise taking out payment protection insurance as a CIS worker. This means if for some reason you are unable to work due to illness or injury you will be covered until your retirement.
In summary, it’s a common misconception that construction workers don’t earn well and in fact you’d be much better off in construction than you would in most other blue-collar roles. If you’re interested in a career in construction, please get in touch: henryk@fixedconstruction.io or sign up to Fixed to start receiving job opportunities today!