For Contractors

Putting it simply, an umbrella company engages an agency’s worker and processes payroll deducts tax, ni, and pensions and apprentice levy costs and pays them over to the relevant authorities.

Many recruitment agencies engage with umbrella companies because it is simple to understand and passes the technical aspects of employment and tax to a specialist company, it is a form of outsourcing.  Even though the pay and employment is outsourced, the agency and end hirer still have responsibilities to ensure it is carried out diligently and compliant with relevant legislation.

Contract rate vs Pay Rate

The agency will give you a rate of pay known as the contract rate, this will not be the same as your final pay rate from the umbrella as any employer needs to account for employers costs such as employers national insurance, pension, apprenticeship levy and accounting for the cost in administrating a payroll.

An umbrella, having access to specialist software and expertise, can calculate these costs more accurately than an agency when trying to compare and umbrella contract rate with a paye rate if the agency were to run their own payroll.

How PG will help

Pay Guardians always have your interests at heart, our promise is to guide you through all the taxation and legal hurdles and ensure your pay, pension, and tax affairs are managed properly.

Pros and cons for contractors

PROS

PROS

  • Your tax affairs will be in order, assuming you pick a compliant umbrella
  • More accurate and receive higher take home pay than if agency operated its own paye
  • Insurance is included
  • Paid on time, as quickly as the agency pays the umbrella
  • Easy to switch
  • Low cost
  • Workplace pension
  • Salary sacrifice
  • Continuity of employment, stable tax code and helps with mortgage applications

CONS

CONS

  • Not as tax efficient as PSC, but that may not be an option with IR35
  • Having to pay employers costs, although your assignment or contract rate should be uplifted from a paye rate to pay for these costs.
  • Paying a fee to be paid, but you will be offered a lower paye rate if the agency ran their own payroll