Umbrella Company v Agency PAYE: Which should you choose?

If your contracts are deemed inside IR35 and you work through a recruitment agency, you’ll probably be given two options for getting paid: umbrella company or agency PAYE. Both payment methods operate in a very similar way. Your payroll and administration will be taken care of – and your income is processed as Pay As You Earn (PAYE). Keep reading and we’ll explore the benefits of the two payroll options. And, we’ll explain the differences.

Agency PAYE

If you opt to be paid via agency PAYE, you will be employed by the agency for your assignment’s duration and will deal with them directly for all issues. The agency will be responsible for all payroll and administrative tasks and process your income as PAYE through their payroll system.

Agency PAYE is a straightforward payroll method to use; all you need to do is sign your contract and submit your timesheets. The agency will then process your tax deductions and submit them to HMRC on your behalf, meaning you don’t have to remember to put money aside to pay a tax bill.

Although Agency PAYE is straightforward to use, it is simply there to process your pay, and you will often receive no additional benefits. This is something to consider when you weigh up umbrella company v agency PAYE.

If you are looking for more than just payroll, you are probably better suited to using an umbrella company.

Umbrella Company

Umbrella companies act as an intermediate between end-clients, recruitment agencies and contractors, and manage all the compliance, administration and employment-related duties. Working through an umbrella company is very similar to Agency PAYE as you become an employee of the umbrella company and are paid through their PAYE system. The umbrella company will deduct Income Tax and National Insurance Contributions (NICs) and pay to it HMRC on your behalf.

You will usually be offered a slightly higher umbrella rate than agency PAYE as it factors in employer deductions. When considering umbrella company v agency PAYE, it is important to note that although the umbrella company will deduct a margin (usually between £15-35 per week) to cover their outgoings, it will not alter your take home pay by much. Umbrella companies will deduct the margin before they calculate your tax as this is the most tax-efficient way.

With both an umbrella company and agency PAYE, you will have access to statutory employee benefits, including Maternity/Paternity Pay and Sick Pay – just like a permanent employee. However, the main difference is that an umbrella company will employ you under a contract of employment. So, regardless of whether you take on one assignment or ten, you’ll be employed under the same contract, giving you continuity of employment.

Umbrella Company v Agency PAYE: Key Differences

There are four key differences to consider when debating umbrella company v agency PAYE. The first, as we’ve previously mentioned, is continuity of employment. If you don’t want to be tied to one agency, change assignments frequently or work on multiple assignments at once – we’d recommend using an umbrella company. You’ll benefit from one tax code, one P60, and one pension provider. It simplifies your tax affairs and makes it easier to prove your income as you will have a full payslip history. Particularly useful if you are applying for a mortgage, loan or visa application.

Umbrella companies provide insurance cover for free as part of their service. When you register, you will usually be covered by Professional Indemnity, Employers Liability and Public Liability. You will also find sector-specific providers will offer additional insurances relating to the role, for example, Drivers Negligence if you are an HGV driver. These insurances will ensure you are covered whilst working on assignments.

Umbrella companies are experts on matters relating to temporary workers and their employment. They’ll be able to offer you expert guidance and support regarding IR35 and legislation affecting contractors and freelancers, employment issues, pay and tax.

Finally, many umbrella companies offer a variety of reward schemes as part of the service. These can range from discounts in shops and restaurants, discounted tickets to attractions in the UK, and rewards for referring friends or colleagues to the service.

Are you looking for an umbrella company?

We hope this article has helped you understand more about Umbrella Company v Agency PAYE.

If you are looking for an umbrella company, why not start your search with our top 10 umbrella companies? It’s an excellent opportunity to have a chat with some FCSA accredited providers and discover the benefits of using an umbrella company for yourself! And, some of them have amazing discounts on at the moment!

Click here to see our top 10 umbrella companies!

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