Agency PAYE or Umbrella PAYE?

Agency PAYE or Umbrella PAYE

When you take on an assignment via a recruitment agency, they may give you the opportunity to be paid in one of three different ways;

Via your own Ltd Company;
Via an Umbrella Company; or
Via Agency PAYE.

So how do you know what route to go down? Well this depends on a number of variables.

First of all, if you assignment is stated as an Inside IR35 contract, then you may well not be able to work via your Ltd Company, unless the agency can make the necessary employment deductions. To find out more on the implications of IR35 in the Private Sector, please click here. If the assignment is outside IR35 then the recruiter can make payment direct to your Ltd Company.

OK so if you are deemed inside IR35, or you decide that you do not want the hassle of operating via a Ltd Company, then you have the option of umbrella or agency. This assumes that the agency is able to operate the payroll for you, if not then you may be asked to work via an umbrella.

Choosing between Agency PAYE and Umbrella PAYE

So if you have been given the option to operate either via agency PAYE or umbrella PAYE, we would expect to see two different rates offered to you dependent on which option you choose.

We would expect to see a lower rate offered if you opt to go down the Agency PAYE route. You would be taken onto the agency payroll and they would ensure deductions are taken for PAYE and NI contributions before issuing you with a payslip. The rate you are given would be deemed your taxable salary and would be similar to what you would see if you were in standard employment.

Contract Rate vs Taxable Salary

The rate offered for Umbrella PAYE (or Ltd if feasible) would usually be inflated to account for the additional deductions you would not see through Agency PAYE. Operating via an umbrella your rate would be deemed as your contract rate and not your taxable salary. This is subject to Employers NI, Apprenticeship Levy and the umbrella margin before reaching your taxable salary.

So let’s take a look at some rate comparisons paid on a weekly basis…

Agency PAYE Rate (Taxable Salary) £500 per day.
Nets a take home figure of £1,614.00

Umbrella PAYE (Contract Rate) £575 per day.
Nets a take home figure of £1,621.00

The figures above (based on 2019/20 tax figures) show that if you were to be offered figures for either way of working on the assignment then you would need an uplift of around 15% for umbrella over agency PAYE.

If you have been offered two rates and would like us to review your take home, then please do get in touch and we can provide you with a breakdown. You will also need to consider that operating via an umbrella company can come with other benefits too. At Clarity, we can offer a flexible Group Pension Scheme, GAYE payments, and an employee rewards scheme.