What is the difference between using an umbrella company and Agency PAYE?

Contractors and freelancers in the UK who source temporary assignments through a recruitment agency are often given two options for their payroll – an umbrella company or agency PAYE. Continue reading to discover the difference between using an umbrella company and agency PAYE.

What is the difference between using an umbrella company and Agency PAYE?

The rate you are offered

You will be paid via Pay As You Earn (PAYE) by both agency PAYE and an umbrella company. PAYE is HMRC’s system for collecting Income Tax and National Insurance from employment. Each time you are paid, your employer (for example, your recruitment agency or umbrella company) will make the required tax deductions and pay them to HMRC before paying you your net salary.

However, one of the differences between using an umbrella company and agency PAYE is that you may be offered an uplifted rate if you choose an umbrella company. This is because the umbrella company must pay employment costs (Employers’ National Insurance, Apprenticeship Levy, Holiday Pay, and Employer Pension Contributions – if you do not opt out). Therefore, recruitment agencies will often offer an uplifted rate to contractors who use an umbrella company to account for the employment costs.

The umbrella company margin

Another difference between using an umbrella company and agency PAYE is that umbrella companies will charge a margin for covering the cost of your payroll, whereas an agency does not. An umbrella company margin will range from £15 – £30 per week. The margin only applies to the weeks you work. Therefore, you will not be charged a margin if you are between contracts but still employed by the umbrella company.

Continuity of employment

When you work via an umbrella company, you will benefit from continuity of employment, which is another key difference between using an umbrella company and agency PAYE. With agency PAYE, each new contract with an end client is a separate run of employment with the recruitment agency. When the contract ends, so does your employment with the agency. However, with an umbrella company, your employment with the umbrella company continues from contract to contract – even if your end client or recruitment agency changes. Continuity of employment is particularly useful if you have multiple contracts with end clients.

Additional services and employee benefits

Whether you choose to use an umbrella company or agency PAYE, you will have access to statutory employment benefits. These include employment rights such as sick pay, maternity pay, and paternity pay.

However, depending on the umbrella company you choose, they may offer additional benefits or services to their employees. For example, if you choose Churchill Knight Umbrella, you can benefit from Churchill Knight Rewards – our employee reward scheme. As part of the reward scheme, you will get hundreds of discounts and promotions for popular retailers, including shops such as ASOS, IKEA, Nike, and many leading UK supermarkets. Also included in Churchill Knight Rewards are amazing extras such as access to a 24-hour GP Hotline, gym discounts, financial advice, and more!

Churchill Knight Umbrella also has a salary sacrifice service, which offers a great way to save tax-efficiently for retirement and boost your personal pension pot. Salary sacrifice allows you to allocate a percentage of your pre-tax salary towards your pension. Not only will this help grow your retirement pot quickly, but contributions will also be exempt from tax and National Insurance.

Please click here to find out more about the difference between Churchill Knight Umbrella’s service and Agency PAYE.

Why do recruitment agencies partner with umbrella companies?

Recruitment agencies often partner with umbrella companies as this reduces their administrative burden and frees up resources and time, allowing them to focus on their core business activities—recruitment. It is entirely your decision which umbrella company you use; however, many recruitment agencies often provide contractors with a Preferred Supplier List (PSL).

Many agencies collate a PSL in order to manage their risk and ensure their workers only use umbrella companies that conform to their high standards of compliance. To determine which umbrella companies will be included on the agency’s PSL, they will conduct a thorough audit, and umbrella companies will be asked to produce certain documents. For example, many recruitment agencies will require umbrella companies to prove they are FCSA-accredited in order to be considered for the PSL. Churchill Knight Umbrella is proud to be an FCSA-accredited umbrella company. To see our official listing – please click here.

Churchill Knight Umbrella

If you are looking for an umbrella company, look no further than Churchill Knight Umbrella. We are an FCSA-accredited and SafeRec-certified umbrella company providing a compliant and reliable payroll service to contractors and freelancers in the UK.

When you register with Churchill Knight Umbrella, you can benefit from the following:

• Easy registration (can be completed in under 10 minutes) online or over the phone
• Ongoing support from our Onboarding Team and Customer Service Team
• Access to My Digital, our umbrella payroll app and portal
• £25 million insurance cover
• Same Day Faster Payments
• There are no joining or leaving fees and no hidden costs
• Employee benefits
• Salary sacrifice
• Churchill Knight Rewards
• Rewards for referring your friends and colleagues to our service

To learn more about Churchill Knight Umbrella’s payroll service and request a free, tailored take-home pay calculation, please click here or call our friendly team on 01707 871622.