Umbrella Company or PAYE (Pay As You Earn)?

If you’re weighing up whether you should opt for an umbrella company or agency PAYE to manage your payroll, then rest assured, the expert advisors at Umbrella Tracker can help.

We have accumulated years of invaluable experience in the contracting market, helping countless freelancers and contractors to find the most suitable payroll solution to meet their needs.

Below, we explain the main differences between umbrella companies and agency PAYE, as well as their benefits, to help you determine which option is most appropriate for you.

Why do people use umbrella companies and agency PAYE?

Umbrella companies (businesses that employ contactors) and agency PAYE (recruitment agencies that both employ contractors and find work for them) can be used to handle the administration and payroll side of temporary workers’ fixed-term contracts.

Both types of approach will ensure your earnings are properly taxed using PAYE, which involves deducting the necessary amount of income tax and national insurance (NI) from your wages.

Other similarities include the fact that you’ll have access to statutory employment rights, like sick pay, and you’ll need to take out insurance cover with both organisations to perform your duties.

What is the difference between agency PAYE and an umbrella company?

One of the biggest differences between using an agency PAYE and an umbrella company is that contractors have more freedom when using an umbrella company.

If you decide to move from one agency and work for another, then you’ll suffer from emergency tax.

With an umbrella company, however, you benefit from the freedom of being able to pick and choose fixed-term contracts from a wide range of recruitment agencies – safe in the knowledge that your payroll is being professionally handled solely by the umbrella company.

Benefits of an umbrella company vs PAYE

Struggling to decide between an agency PAYE or umbrella company? Carry on reading to learn more about the benefits of each from our professional team.

Alternatively, for a more personalised assistance when choosing between an umbrella company and agency PAYE, don’t hesitate to get in touch with the friendly team of expert advisors at Umbrella Tracker.

Umbrella company benefits

Continuity of employment

One of the biggest benefits of using an umbrella company is the continuity of employment it allows.

Regardless of whether you’re on a contract or not, this continuity of employment is crucial if you want to build your credit rating and apply for significant loans, such as a mortgage.

This is in contrast to agency PAYE where employment ends with the contract.

Access to more benefits

While both an umbrella company and agency PAYE will give you access to statutory employment rights, some umbrella companies also offer access to certain medical health plans, pension schemes, and discounts, too.

Uplift to your rate

Generally, where there is an umbrella company engaged, agencies pass on a small uplift to cover employer’s NICs that the contractor will be liable for.

Freedom of choice

With an umbrella company, contractors have far more freedom to move around and choose both agencies and assignments that meet their specific preferences and requirements.

One point of contact for your payroll enquiries

Employment through an umbrella company means that you deal with just a single point of contact regarding your payroll and tax enquiries.

Your details and assignments will be held by the umbrella company meaning if you mislay any information, you only need to make one call or write a single email to retrieve this information.

Less chance of losing income through a BR (Basic Rate) code

If you’re between employers but haven’t taken a break, then you will only be able to enjoy a tax allowance through one payroll.

The second payroll, and possibly the employer you’re now receiving income from, will have to apply a BR tax code which means no tax-free allowance is applied to this additional income stream.

This means your all earnings taxed on a BR code will be subject to tax and NICs.

Being employed through an overarching employment contract offered through an umbrella company means you can transition through contracts from several sources without emergency tax implications, providing your umbrella earnings are your only source of income

Free advice and support

Unsure about your employment rights while out on contract? An umbrella company ensures you have someone to discuss your concerns with and to act on your behalf with the end client or your recruitment agency.

Agency PAYE benefits

A short-term fix

If you’re only contracting for a short period of time, then it may be quicker and easier to join your agency’s payroll – if offered.

This could mean a quicker setup time and therefore quicker turnaround in your payment as the funds don’t need to be transferred through the umbrella company’s account to get to you.

Which is better: PAYE or an umbrella company?

You may never need answer to this question because agencies, particularly those operating nationally, don’t allow temporary workers to join their payroll.

However, if you’re faced with the choice, then it will boil down to your personal circumstances and whether or not you want the freedom to choose where you get assignments from.

For example, umbrella companies are preferable for individuals that work on multiple contracts at the same time, want to benefit from continuous employment, and prefer to have the assurance of a third party that specialises in payroll and employment administration

However, if you’re looking for short-term temporary work before heading into permanent employment, then agency PAYE could be a more suitable option.

Get in touch with Umbrella Tracker today

When it comes to choosing the right payroll solution for you or understanding agency PAYE vs umbrella company, it makes sense to contact the experts.

At Umbrella Tracker, we can help you to take back control of your payroll with our UK umbrella company comparison service.

We can help you to research thousands of approved umbrella companies, so you can choose the right business to properly support your career.

Our comprehensive vetting process for umbrella companies and limited company accountants we compare involves a combination of our own in-depth research, current client testimonials, and Preferred Supplier Lists (PSLs) from recruitment companies.

Plus, this handpicked list is monitored on an ongoing basis, so you can feel confident that we’ll only connect you with professional and above-board businesses.

At Umbrella Tracker, you’ll benefit from tailored and unbiased advice from our knowledgeable team, saving you time and money when it comes to committing to an umbrella company that’s deemed the most suitable for your specific circumstances.

Regardless of whether you work in the healthcare, medical, social care, or IT industry, we understand the importance of doing your research before you commit to an umbrella company.

If you’d like to learn more about the difference between an umbrella company and a PAYE agency or have a question about our umbrella company comparison service, please contact our experienced advisors today.

To speak to a member of our team and explore your options, simply give us a call on 0203 026 3303 – we look forward to hearing from you soon!


More advice on Umbrella Companies

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Umbrella Company Fees

How to choose an Umbrella Company

Umbrella Company vs Limited Company

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