If you’re a recruiter working with contractors in the UK there are a few engagement options that you might use. For contractors who work inside IR35 you need a PAYE solution, which usually means either engaging directly through Agency PAYE, or outsourcing through umbrella company employment. In this article we’ll look at the difference between the two, to help you decide which is best for each of your contractors.
What’s the difference between Agency PAYE and Umbrella Company Employment?
Agency PAYE is where you, as the recruitment agency, engage the contractor directly and pay them through your PAYE system. You are responsible for managing the contractor relationship, which includes paying them correctly and compliance with all relevant legislation. Depending on the details of their contract, the contractor may have some limited employment rights and again it’s up to you to manage these. The engagement will usually end when the assignment ends.
Umbrella company employment is where the contractor is employed by an umbrella company, rather than by you directly. You pay the umbrella company an agreed rate for the work the contractor completes for your clients, and the umbrella pays the contractor as their employee.
The umbrella assumes full responsibility for the contractor’s employment, including paying them correctly and compliance with legislation. The contractor may complete several assignments during their employment, and is entitled to full employment rights, even when they’re between assignments. These are provided by the umbrella company, and include paid holiday, sick pay, access to a workplace pension and maternity/paternity pay.
Where everything is working as it should, the contractor will take home roughly the same amount via either model.
Who might suit Agency PAYE
Agency PAYE is most appropriate where the contract is expected to be very short term, and you don’t anticipate a succession of assignments, for example a temp to perm arrangement where the end client hopes to offer permanent employment in a few weeks.
In these circumstances, where you’re looking at a single short assignment, the simplicity of Agency PAYE is likely to be more attractive than the protection and stability of umbrella company employment.
Where umbrella employment is better
Where the contractor expects to be contracting for an extended period, either because their current assignment is longer, or because they intend to complete several assignments, umbrella company employment is usually better, for the contractor and for you.
For the contractor, this is because they have a single, continuous employment and full employment rights. For you, it means you can outsource the cost, work and risk of employment to specialist experts.
If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.