CIS Labour: A Recruitment Solution or an Industrial Relations Risk

The growing tension between workforce availability, employment models and major-project delivery

The use of Construction Industry Scheme (CIS) labour has become an increasingly important issue for major projects.

Contractors frequently argue that skilled workers prefer CIS engagement and that insisting upon direct employment makes recruitment more difficult and more expensive. Clients and principal contractors, meanwhile, may be concerned about employment status, workforce consistency and the industrial relations consequences of allowing different engagement models across the same project.

Both positions reflect genuine commercial pressures. The difficulty arises when CIS is treated as either an essential recruitment solution or something which must always be prohibited, without properly examining the circumstances.

The real question is whether CIS engagement provides the flexibility needed to secure labour—or transfers a different set of risks into the project.

CIS is not an employment status

The starting point is an important distinction: CIS is a tax deduction scheme, not an employment status.

Registration under CIS does not, by itself, establish that an individual is genuinely self-employed. That depends upon the reality of the working relationship, including matters such as control, personal service, financial risk and whether the individual is genuinely operating an independent business.

This distinction can become blurred during project recruitment. Workers may describe themselves as “CIS” because that is how they have traditionally been paid. Contractors may also refer to a “CIS workforce” as though registration under the scheme resolves the employment-status question.

It does not.

Where individuals are recruited personally to perform defined roles, work under close supervision, follow fixed hours and have little genuine commercial independence, describing them as CIS does not remove the risk that the relationship could be regarded as employment.

Why contractors favour CIS labour

There are nevertheless understandable reasons why contractors propose CIS engagement.

It can provide access to an established pool of mobile labour accustomed to moving between projects. Workers may perceive higher immediate take-home pay and greater freedom to move between opportunities. Contractors may gain flexibility to increase or reduce workforce numbers as the programme changes, without taking on the full cost and obligations associated with direct employment.

In a competitive tender, that model can also produce an apparently lower labour cost.

The challenge emerges when the project requires the contractor to move from CIS engagement to direct employment. Contractors may argue that workers will not accept PAYE terms unless rates are increased sufficiently to compensate for the perceived difference in take-home pay. Employer National Insurance, pension contributions, holiday pay and other employment costs must also be recognised.

A project can therefore find itself caught between a requirement for direct employment and a labour market which has become accustomed to CIS.

But worker preference cannot be the only consideration. The engagement model must also be lawful, sustainable and compatible with the project’s wider workforce strategy.

The industrial relations consequences

The risks extend beyond tax and employment status.

Allowing contractors to adopt different engagement models can create a fragmented workforce. People performing comparable work may receive different rates, benefits, holiday arrangements and employment protections depending upon which contractor engages them and whether they are employed directly, supplied through an agency or treated as self-employed.

These differences can become particularly visible where trades work alongside one another.

A contractor paying enhanced CIS rates may attract labour away from another contractor offering direct employment. Workers may move between packages for relatively small financial gains, weakening retention and disrupting productivity. Direct employees may also compare their take-home pay with CIS workers without placing the same value on holiday pay, pension contributions, sickness arrangements and employment security.

What begins as a recruitment solution can therefore become a source of workforce instability, resentment and trade union attention.

The NAECI contrast

The National Agreement for the Engineering Construction Industry (NAECI) takes a clear position. It is founded on the principle of direct employment and expressly prohibits self-employment for work within its scope.

On a registered NAECI project, contractors tender, plan and recruit in the knowledge that the in-scope workforce must be directly employed. The ground rules are established from the beginning and apply consistently across participating contractors.

However, at the time of writing, the NJC lists only two current Category 1 projects in the UK: Project Puma at Saltend and the North London Heat & Power Project in Edmonton.

That raises an important question:

Why has formal NAECI Category 1 coverage become so rare?

The UK continues to undertake major engineering construction, energy and infrastructure projects, yet very few are registered as Category 1 under NAECI.

Some clients may regard NAECI as too prescriptive, too costly or inconsistent with their preferred approach to trade union engagement. Others may favour project-specific employment arrangements or leave workforce matters largely to individual contractors.

Hinkley Point C and Sizewell C demonstrate that major projects can adopt substantial bespoke workforce agreements outside conventional Category 1 registration. The important feature is not simply the name of the agreement, but whether the project establishes clear and consistent workforce standards from the outset.

Where neither NAECI nor an effective project-wide alternative applies, individual contractors are more likely to propose the labour model which best suits their own commercial position. CIS then becomes part of the procurement discussion—sometimes only after the preferred bidder has been identified or the original price has been submitted.

The industry should therefore consider whether the move away from collective project frameworks has helped create the very recruitment problem it is now trying to resolve.

Addressing CIS at procurement stage

The appropriate workforce model should be examined before contract award, not left until mobilisation.

Tenderers should be required to explain:

• the anticipated balance between direct, agency and genuinely self-employed labour;

• how employment status will be assessed;

• where the required workforce will come from;

• whether proposed rates will attract and retain skilled labour;

• the full cost of moving to direct employment if CIS is not permitted; and

• how their model will interact with other contractors on the project.

A project which intends to prohibit CIS should make that requirement clear before bidders price the work. Imposing it later may lead to substantial cost increases, disputes over compensation and claims that the required workforce cannot be recruited.

Equally, accepting CIS simply because a contractor says that it is standard industry practice is not a sufficient assessment. The project must understand both the legal basis of the arrangements and their wider workforce consequences.

A project-wide decision

CIS labour may provide flexibility and access to skills in appropriate circumstances. It is not, however, a substitute for workforce planning.

Major projects need a coherent position on employment models, applied consistently through procurement and mobilisation. That position should take account of labour availability, employment status, cost, workforce relations and the terms being offered across different work packages.

NAECI resolves much of this uncertainty through a clear direct-employment requirement. Where projects choose not to operate under NAECI, they must decide what will take its place.

Otherwise, the engagement model will be determined contractor by contractor, bid by bid and worker by worker—and the resulting inconsistencies will eventually become a project-level problem.

CIS may help recruit a workforce in the short term. The more important question is whether it helps build a stable, productive and sustainable workforce for the life of the project.