Hiring Subbies Without Killing Your Margin: What to Pay and How to Pay It

Most contractors ask what the going rate is for a trade in their area. It is the wrong first question. What you can afford to pay is set by the price you sold the job at and the risks you agreed to carry, and two contractors on the same street can afford wildly different numbers for the same work.

This is the maths of the paying side: how to set the rate from your own margin backwards, what CIS actually takes out and when, and the handful of terms that decide whether your priced margin survives contact with a real job.

Set the rate backwards from your margin

The affordable rate is a residual, not a market lookup. Start from what you sold and take out everything that is not the subcontractor's money.

1. 01Contract value for the package. The part of the job this trade is delivering, not the whole contract.
2. 02Less materials, plant and waste if you are supplying them. Decide this before you talk rates - the same job priced labour-only and supply-and-fix are two different numbers and confusing them is the most common way a quote goes wrong.
3. 03Less your overhead allocation. Your time managing it, the van, the insurance, the software, the accountant. If you have never worked out your overhead per productive day, that is the single most valuable afternoon available to you.
4. 04Less a risk allowance. Snagging, a return visit, a day lost to another trade overrunning. Somewhere between 5 and 10 per cent of the package is realistic on most work; if you have never lost money to a return visit you have not been doing this long.
5. 05Less the margin you priced. This is the number the whole business runs on. It is not what is left over at the end - it comes out before the subcontractor rate is set, or it does not exist.

What remains is your ceiling for that package. Now compare it with what the trade actually costs in your area. If your ceiling is comfortably above it, you priced well. If it is below, the job was underpriced - and the fix is your quoting, not the subbie's rate. Estimating the job accurately in the first place is what makes the paying side simple.

Day rate or price work: what you are really buying

The choice is a risk transfer, not a price comparison. On a day rate, you carry the productivity risk: if the work takes three days instead of two, you pay for three. On price work, the subcontractor carries it, and they price that risk in - which is exactly why the equivalent daily figure looks higher.

• Use price work where the scope is definable. Second fix, a defined area of roofing, a set number of units. If you can describe done, you can price it, and your cost is fixed on the day you agree it.
• Use day rates where it genuinely is not. Opening up, chasing a leak, remedial work behind another trade's failure, snagging on someone else's job. Pretending unknown scope is fixed-price work produces a variation argument instead of a finished job.
• Never use a day rate to avoid defining the scope. That is not flexibility, it is you funding someone else's pace.
• Watch the mixed job. Price work plus day-rate extras is where margins quietly disappear. Agree in advance what triggers a day rate and who authorises it, in writing, before the first extra.

The comparison between pricing models in the round - and when each one wins on the selling side too - is covered in more depth in the day rate versus fixed price breakdown on Construction Arbitrage. This post stays on what you pay out.

The CIS maths, from the paying side

The moment you pay a subcontractor for construction work you are a contractor under the Construction Industry Scheme, whatever your business calls itself. Three things follow.

Register and verify. Register with HMRC as a CIS contractor, then verify every subcontractor before their first payment. Verification is not paperwork for its own sake - it is what tells you the rate to deduct.

Deduct at the rate HMRC gives you. 20 per cent for a subcontractor who is registered and verified. 30 per cent for one who is not registered, or who cannot be matched during verification. Nil for a subcontractor with gross payment status - which they qualify for on a net construction turnover test of at least £30,000 in the previous 12 months (per director for a company), plus business and compliance tests. A subbie with gross status is not cheaper; the money simply moves later, and it tells you something about how long they have been trading cleanly.

Deduct from labour only. The deduction is calculated after taking out the cost of materials the subcontractor supplied, VAT and certain other costs. Ask every subcontractor to invoice with labour and materials split as standard - it removes the single most common source of CIS error.

Then pay it over. CIS deductions go to HMRC monthly with your PAYE, and from 6 April 2026 mainstream contractors must file a nil return or notify a period of inactivity in months when they pay no subcontractors - so the filing obligation does not pause when the work does. Give each subcontractor a payment and deduction statement for every payment: it is their proof, and the first thing a good subbie checks about whether you are worth working for.

One more line that catches new hirers: if you and the subcontractor are both VAT registered and the payment falls within CIS, the VAT domestic reverse charge usually applies - they invoice without VAT and you account for it yourself. The exception is where you are the end user, meaning you are not making an onward supply of those construction services, and you tell them so in writing. This is general guidance and not tax advice; the edges here are genuinely fiddly and worth ten minutes of your accountant's time.

The terms that protect the margin you priced

Rate is only half of what you pay. The rest is decided by what you agreed, or failed to agree, before anyone started.

• A written order, always. Scope, exclusions, rate, what counts as complete, payment date, who supplies what, snagging obligation, insurance required. One page. Ten minutes. It is the cheapest margin protection available.
• Payment terms you can actually fund. If you are paid in 45 days and you pay in 14, you are financing the job. Either negotiate the terms above you or set yours to match reality - and never agree terms you know you will break, because a subbie who gets paid late once prices you higher forever.
• A retention or a snagging hold-back, agreed up front. Not sprung at the end. A modest hold-back released on completed snagging is normal and defensible; an unannounced deduction from a final invoice is how you lose a good trade.
• Two options per critical trade. A no-show is only a crisis if there is nobody else. Depth on your costing and depth on your bench are the two things that make a hiring plan survive a bad week.
• Know the employment status line. Genuine subcontracting means they control how the work is done, supply their own tools, and can send a substitute. Set fixed hours, supply everything and forbid substitutes and you may be looking at employment with the tax treatment that follows. If a relationship starts to look like a job, take advice before HMRC forms its own view.

What good subcontractors are actually pricing

The trades you want are not choosing purely on rate, which is useful, because rate is the one lever that comes straight out of your margin. They are pricing certainty: do you pay on the day you said, is the site ready when you said it would be, is the scope the same when they arrive, and do you back them when a client is unreasonable.

A contractor who pays on time with a clear order gets better people at the same number than one who pays late with a vague brief. That is the cheapest margin improvement in this entire post, and it costs nothing but organisation. It is also the same discipline that underpins improving margins across the business and, further out, making more money without working more hours.

Pay properly, price properly, and put it in writing. The margin you keep is decided long before the invoice arrives.