Worker Benefits

Highlighting the benefits of PAYE over Umbrella.

PAYE V UMBRELLA example

With PAYE you will be better off by £1019.61

Outsourced PAYE

Pros

• It is the simplest way to get paid, you just need to sign your contract and submit your timesheets.

• You will benefit from the option to be covered by in employer’s insurance schemes.

• You will benefit from the option to participate in employer’s pension scheme.

• You will be entitled to holiday pay when you have time off work (in line with government holiday entitlement)

• There are no fees charged by the PAYE provider so what you get paid from the agency is what you earn (less tax and employee national insurance) it is a totally FEE FREE service to you as the worker.

• Statutory benefits such as maternity pay and sick pay.

• No material business costs – tools, equipment, uniforms etc.

• Though the hourly rates may look lower than umbrella, TAKE HOME PAY WILL BE HIGHER. (see example)

• PAYE gives you access to an online portal so that you can log in to view your payslips so you can see that all the necessary liabilities have been deducted from your wages. You can also print wage slips off from here and there is an option for you to receive an SMS text message showing your net pay the day before you get paid.

• There is no risk of getting caught out under the disguised employment or disguised remuneration changes announced in 2016. This is because income paid is full PAYE, all liabilities are paid, no expenses to be considered therefore fully compliant and no grey areas.

Cons

• You are not able to claim expenses (if applicable)

• The  advertised hourly rate is likely to be lower than if you are employed by an Umbrella company

• May not be right for you if you change assignments frequently or don’t want to be tied to one agency

Umbrella

Pros

• Continuity of employment – umbrella companies are geared towards contractors who work on a series of fixed-term assignments, so you keep the same employer as you move from job to job.

• Ability to claim work-related expenses (where applicable).

• You will usually be covered by the Umbrella Company’s insurances.

Cons

• If you are not incurring much in the way of work-related expenses or gaining employee benefits, an Umbrella company may not be the best option.

• All Umbrella companies will charge a weekly or monthly fee from the money you receive from the agency (umbrella company services are not free to employees)

• There are some unscrupulous Umbrella companies who may not be paying all the taxes due to HMRC.

• As the hourly rate will be higher to cover the employer’s National insurance and rolled up holiday pay this will mean that you will also pay more tax on your earnings.

• If errors are made when the umbrella company does the employers national insurance and rolled in holiday calculations this could actually drop your hourly rate below national minimum wage, especially when the umbrella company’s admin fee is taken into account.

• HMRC has announced changes to the way Umbrella Employees claim expenses. These changes restrict Umbrella Employees from claiming tax relief on travel expenses if you are subject to the supervision, direction or control (SDC) of the agency or end client. If this is the case when performing your services then you will no longer be able to claim travel expenses. If it is found that you are making false expenses claims then under “regulation 80” if the umbrella company and the agency are no longer trading you will be liable for 100% of the charges, penalties and fines.   

Regulation 80 is a formal means of recovering unpaid PAYE tax.
It gives HMRC power to determine the tax that is due from an employer but remains unpaid.

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