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Last edited 25 Sep 2026

What Are the Four Types of Payroll?

1 Introduction
2 Related articles on Designing Buildings

[edit] Introduction

Payroll is the process of calculating and administering payments to employees and making the required deductions and payments associated with employment. For construction businesses, payroll can be particularly complex because employees may work across multiple sites and projects, receive different rates of pay, work variable hours or overtime, and have labour costs allocated to specific projects.

There is no universally agreed classification of four types of payroll. However, four common approaches to organising payroll administration are in-house payroll, outsourced payroll, payroll software and managed payroll services, and broader employment administration arrangements involving employment intermediaries. These approaches differ according to the extent to which payroll responsibilities are retained by the employer or undertaken by another organisation.

In the UK, construction businesses must also distinguish between payroll for employees and payments made to subcontractors under the Construction Industry Scheme (CIS). CIS administration is not the same as employee payroll, although both may be managed alongside one another.

[edit] Four approaches to payroll administration

[edit] In-house payroll

In-house payroll is managed by the employer using its own staff and systems. Payroll responsibilities may be undertaken by payroll, finance or human resources personnel, with calculations and reporting supported by payroll software.

For construction businesses, in-house payroll can provide direct control over employee information and allow payroll records to be integrated with time recording, accounting and job costing systems. It may also enable the organisation to develop procedures that reflect its particular workforce and project arrangements.

However, in-house payroll requires appropriate staff knowledge and resources. Employers remain responsible for ensuring that payroll processes comply with applicable tax, employment and pension requirements and that payroll information is accurate.

[edit] Outsourced payroll

Outsourced payroll involves appointing an external organisation to undertake some or all payroll administration on behalf of the employer. The employer normally provides information about employees, hours worked, payments and other relevant changes, while the external provider processes the information and carries out agreed payroll activities.

The extent of outsourcing can vary. Some organisations outsource routine calculations and payslip production while retaining responsibility for employee records and approvals. Others use a more comprehensive service that includes payroll processing, reporting and administrative support.

Outsourcing can reduce the internal administrative workload and provide access to specialist payroll expertise. However, the employer must still provide accurate information and maintain appropriate oversight of the service. Responsibilities for errors, data protection, reporting and statutory obligations should be clearly established.

[edit] Payroll software and managed payroll services

Payroll software can be used by employers to calculate pay, deductions and employer liabilities, maintain payroll records and produce reports. Some systems are used entirely by internal staff, while others are supported by external payroll specialists.

Construction businesses may require additional functionality to connect payroll with time recording, accounting and job costing. For example, approved employee hours may be allocated to individual projects, activities or cost codes before payroll is processed.

Features may include:

employee and payroll records;
calculation of pay and deductions;
time and attendance information;
payroll reporting;
integration with accounting systems;
allocation of labour costs to projects or cost codes; and
approval and audit procedures.

The suitability of payroll software depends on the complexity of the organisation's employment arrangements and the quality of the information entered into the system. Automation can reduce repetitive administrative work but does not remove the need for payroll information to be checked and approved.

[edit] Employment intermediaries and wider workforce administration

Some organisations use arrangements in which payroll administration is provided as part of a wider employment or workforce management service. Depending on the arrangement, this may include human resources administration, employee benefits, timesheet management and other employment-related functions.

Employment intermediaries and umbrella arrangements are used in some parts of the construction industry, particularly where workers are supplied through agencies or other intermediaries. The legal and tax responsibilities of the parties involved depend on the specific contractual and employment arrangements.

Businesses should establish clearly who employs the worker and who is responsible for operating payroll, making deductions and meeting other employment obligations. Employment status should be assessed according to the actual working arrangements and applicable legislation rather than the description used by the parties.

[edit] Construction-specific payroll considerations

Construction payroll can involve requirements that are less common in other sectors. Employees may work across several projects during a pay period, undertake different activities or receive different rates of pay.

Important considerations can include:

recording hours worked accurately;
managing overtime and different working patterns;
applying contractual rates of pay and allowances;
allocating labour costs to projects;
integrating time records with payroll;
maintaining employee records;
managing pension contributions and other deductions;
supporting accounting and job costing; and
maintaining appropriate payroll records.

Union agreements or other collective arrangements may also affect pay, deductions and benefits where applicable.

[edit] Time recording and payroll

Accurate time recording is particularly important for construction businesses because employees may work at different sites or on several projects during the same pay period.

Time information may be collected through timesheets, mobile devices, time clocks or other systems. Information can include hours worked, overtime, breaks, shift arrangements and the project or activity to which the work relates.

Procedures should be established for reviewing and approving time information before payroll is processed. Inaccurate time records can affect both employee payments and project cost information.

[edit] Payroll and job costing

Labour is a significant cost for many construction projects. Connecting payroll information with job costing systems can help contractors allocate labour costs to individual projects, work packages, activities or cost codes.

This can provide information for monitoring expenditure against estimates and budgets. However, payroll costs may need to be supplemented by other employment-related costs when assessing the full cost of labour.

The accuracy of job costing depends on the correct allocation of employee time and costs. Automated transfers between payroll and accounting systems should therefore be subject to appropriate checks and controls.

[edit] Employees and subcontractors

Employees and subcontractors are subject to different payment and tax arrangements. Employee payroll normally involves PAYE and National Insurance requirements, while payments to qualifying construction subcontractors may be subject to the Construction Industry Scheme.

A construction business should not treat all workers as subcontractors simply because they work on a construction site or provide services for a particular project. Employment status and the appropriate tax treatment depend on the circumstances and applicable legislation.

Payroll and CIS administration may therefore need to operate alongside one another while maintaining separate records and processes.

[edit] Choosing an approach to payroll administration

The most appropriate payroll approach will depend on the size and structure of the construction business, the number of employees, the complexity of employment arrangements and the resources available internally.

Relevant considerations include:

number of employees;
number and location of construction sites;
frequency of payroll processing;
different rates of pay and working arrangements;
overtime and allowances;
time recording requirements;
integration with accounting and job costing;
use of subcontractors;
availability of internal payroll expertise;
data protection and information security requirements; and
cost of software or external services.

Organisations should also consider the level of control required over payroll information and the procedures needed to review and approve payroll before payments are made.

[edit] Advantages and limitations of different approaches

In-house payroll can provide direct control and close integration with internal accounting and project systems, but requires appropriate staff knowledge and administrative resources.

Outsourced payroll can reduce the internal administrative workload and provide access to specialist services, but requires effective communication, accurate data and appropriate oversight of the provider.

Payroll software can improve efficiency and support integration with other business systems, but its effectiveness depends on suitable configuration, accurate information and appropriate user training.

Broader workforce administration arrangements can combine payroll with other employment services, but may involve more complex contractual and employment relationships. Construction businesses should ensure that responsibilities for employment, tax and payroll obligations are clearly understood.

[edit] Conclusion

The term 'types of payroll' can describe different ways in which payroll administration is organised rather than four fixed and universally recognised categories. In-house processing, outsourcing, payroll software and wider workforce administration arrangements represent different approaches to managing employee payments and associated administrative responsibilities.

For construction businesses, the choice of approach should also take account of time recording, project-based labour allocation, job costing and the distinction between employees and subcontractors. A suitable payroll system or service should support accurate employee payments while providing reliable information for financial management and construction project control.