What is the difference between a PAYE agency and Umbrella company? | 5 min read
Whether you’re new to contracting or you’ve been working as a contractor for years, it’s important to ensure that you get paid in the most efficient and effective way for you.
Many contractors choose to work either under a PAYE agency or an umbrella company. But what’s the difference between these two approaches?
What is an umbrella company?
An umbrella company is an employer that employs contractors and freelancers. They provide a permanent contract of employment, which remains in place even when you are between assignments or clients.
What is a PAYE agent?
If you choose to work under a PAYE agency, you agent will run your payroll. They will be your employer and will process your salary through their PAYE.
So what’s the difference between PAYE and an Umbrella Company?
Employment
If you are paid by PAYE, every time you start a new contract, you will also start a new term of employment. If you are operating under an umbrella company, on the other hand, your employment can continue as you move between contracts. This means you’ll have one continuous employer, regardless of how many contracts and clients you have.
Insurance
When you work as a contractor, you will need the appropriate level of insurance, regardless of whether you work under a PAYE agent or an umbrella company. Good agencies and umbrella companies will both usually provide the insurance you need to carry out your role. However, an umbrella company may also offer additional cover, such as health insurance, life insurance, and accident cover, at no extra cost.
Costs
You should also consider the costs involved in each way of working. If you work through a PAYE agency, there won’t usually be any direct cost to you. However, if you decide to work under an umbrella company, your rate will be increased in order to cover employment costs as well as the umbrella company’s margin.
Expenses
Whether you are employed via a PAYE agency or an umbrella company, you will be classed as employed and, therefore, won’t have to handle your own tax returns. With an umbrella company, however, you may also be able to claim tax relief on some work-related expenses. This will reduce the amount of tax you pay.
Employment benefits
When you work under an umbrella company, they will be your employer and, as a result, will be responsible for your statutory employment rights, including sick pay, maternity and paternity pay, and more.
To find out more about the differences between working under a PAYE agency and an umbrella company, please get in touch. Our team of accounting specialists are ready and waiting to help you find the best contractor solution for your needs.
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Related articles
https://easypaye.org/paying-paye-a-guide/
https://easypaye.org/how-much-paye-should-i-pay-updated-for-2022/
