Many recruiters offer their contractors a choice between Agency PAYE (being engaged and paid directly by the recruitment agency themselves) and umbrella company employment (being employed by an umbrella company, who supply their services to the agency). Assuming the right umbrella company is involved, umbrella employment is almost always the better choice, for the recruiter and for the contractor. In this article we’ll explain some of the reasons why.
How is umbrella company employment different from Agency PAYE?
On the surface the two appear to be very similar; they both involve calculating contractor pay on a PAYE basis, and in both cases the contractor will take home roughly the same amount of money. However, there are three very important differences:
In Agency PAYE, the contractor is usually engaged as a “worker” rather than as an employee. This gives them more limited rights and protections.
In Agency PAYE, the contractor is engaged by you and they are engaged only during their assignment. With umbrella employment, the contractor is employed by the umbrella company, and their employment continues across all their assignments and even between assignments when they’re not working.
In Agency PAYE, you are engaging the contractor directly, so the responsibility, work and risk attached to the engagement all fall on you. With umbrella employment, these are outsourced to the umbrella company.
These two facts, that the contractor is continuously employed by the umbrella company, have a number of beneficial effects:
As the contractor’s employer, the umbrella company is responsible for statutory payments like Sick pay and Maternity/Paternity pay. Because of continuous employment, it’s much more likely that the contractor will qualify for such payments, and they apply even when the contractor is between assignments.
Every UK employer must provide and contribute to a workplace pension for their employees. Obviously, this includes umbrella company employees, so the umbrella company will automatically enrol all qualifying contractors onto a pension scheme. Typically, contractors are enrolled once they’ve been with the umbrella company for three months. Contributions will be made by the contractor and the umbrella company each time the contractor is paid after the three-month period has passed.
Depending on the umbrella company, the contractor may be able to contribute to their existing pension via salary sacrifice, either as well as or instead of contributing to the umbrella's pension scheme.
Assuming they work full time for a full year, all UK employees are entitled to at least 28 days paid holiday, including the 8 annual bank holidays. Again, as their employer, the umbrella company is responsible for these payments.
Access to credit and references
As the contractor has a single period of continuous employment, access to mortgages and other credit can be improved. This is in marked contrast to the long list of temporary engagements that often arises from Agency PAYE. They also have a single point of contact for employment references, which makes things simpler and easier to arrange.
The right umbrella company will have the necessary expertise and infrastructure to handle large-volume payroll and other HR tasks as a routine part of their operations. This translates into contractors being paid correctly and on time, with enough flexibility to deal with any issues that do occur. From the contractor’s point of view, this means the correct amount of money turning up in their bank account when expected, and from yours it means fewer queries and less drama for your staff to deal with.
Outsourcing work and risk
Because you’ve placed all those payroll and HR tasks into expert hands, along with the legislative and compliance risks associated with employing contractors, you can concentrate on your core business, which is sourcing the skills your clients need. This benefits your clients and your contractors, who can expect a better all-round service.
So far, we’ve mostly concentrated on what a compliant umbrella company has to do. Any umbrella company who is both compliant and competent will offer all these benefits. However, at Orange Genie, we’re not satisfied with doing the minimum, and we don’t think simply complying with the law should be a selling point.
The right umbrella company should take every opportunity to improve the lives of their employees, and enhance their experience as contractors. In doing so, they will also help you attract and retain the best contractors for your clients.
For example, Orange Genie employees get access to our amazing benefits and rewards platform, Orange Genie Edge, which is packed full of benefits that we’ve specifically chosen to make a real difference to our contractors and their families.