Agency PAYE vs Umbrella Company

Here’s a scenario for you. You’ve done the difficult part and secured your next assignment through a recruiter, who has asked if you’d rather operate through an umbrella company or become an agency PAYE worker.

Like many people at this stage, you might be not completely clear on the difference between the two. But fear not, in this article we’ll look at agency PAYE vs umbrella working to help you make a well informed decision.

What is an agency PAYE worker?

Being an agency PAYE worker means that you become an employee of the employment or recruitment agency that has placed you, hence the term 'agency worker'. You’ll join the intermediary’s payroll for the duration of the contract and be paid minus PAYE tax deductions, just like an employee.

All agency PAYE workers are entitled to workers’ rights, but you won’t necessarily receive them all from day one. The national minimum wage and the statutory minimum level of paid holiday are granted to you immediately though.

After 12 weeks you qualify for the exact same rights as someone employed directly. In other words, you receive what’s known as ‘equal treatment’. Whether it’s equal pay to direct employees in the same role, automatic pension enrollment or paid annual leave, agency workers will get many of the same benefits after 3 months in the same contract.

What is PAYE?

PAYE is an acronym for Pay As You Earn. It alludes to the Income Tax that will be deducted from your salary before you’re paid. PAYE tax is usually subtracted at source by your employer who will then pay it to HMRC, along with National Insurance contributions (NICs).

The alternative way to pay Income Tax is via the self-assessment, which is how freelancers and contractors who do not work on the payroll of agencies, clients or umbrella companies submit their tax returns.

How does agency PAYE differ to an umbrella company?

While umbrella working has a number of similarities to agency working, there are also some key differences, which we’ll run through now.

Like agency workers, umbrella workers are employees of the umbrella company. As an umbrella worker you will also be subject to PAYE tax, which will be deducted by the umbrella company who will then pay you the remainder.

However, where agency workers must wait for 12 weeks to receive equal treatment, umbrella workers can get the full range of employment rights immediately - whether that’s sick pay, maternity or paternity pay or paid holiday.

What’s more, it’s widely acknowledged that umbrella workers have more freedom and flexibility than agency workers. This is because an agency worker is only engaged for the duration of the contract held by the recruitment company. In contrast, umbrella employees can work on multiple contracts simultaneously and also dip in and out of this way of working as and when they want or need to.

Umbrella vs agency PAYE - a comparison

There are many different options for contractors whether that's working through Agency PAYE or an umbrella company.

Feature	Agency PAYE	Umbrella
Holiday pay	Yes	Yes
Weekly/Monthly pay	Yes*	Yes
Insurance coverage	Yes	Yes
Access to workplace pension	Yes	Yes
Full contract of employment & all statutory benefits	No	Yes
Dedicated employee support team	No	Yes
MyParasol - 24/7 access to contracts and payslips	No	Yes
Multiple assignments = continuous employment	No	Yes
Access to Caroola Rewards saving up to £1,200 per year	No	Yes
Free financial advice from expert business partners inc Caroola Financial Planning	No	Yes
Option for tax efficient private pension contributions including: The freedom to use your current pension company; & benefitting from the Parasol Pension top-up***	No	Yes
Personal accident insurance covers work related and communing incidents**	No	Yes
Fuel discount card saving up to 20p per litre**	No	Yes
Completion of Self-Assessment Tax Return**	No	Yes

* Monthly option dependent on agency.
** Available with Umbrella Plus.
*** Parasol pay 10.3% of the ENICS saving into the employee's pension fund.

So which is best? Agency PAYE or umbrella company?

Ultimately, the choice is a personal one. However, one way to decide is by thinking about what matters most to you.

For example, if you want to work on multiple projects, would like the benefits and security of continuous employment, umbrella working will likely tick the right boxes.

On the other hand, if you plan to work on a temporary contract just this once before returning to permanent employment and want your work sourced and paid by the same organisation, then agency PAYE might be an avenue to explore.