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Understanding the difference between an umbrella company, such as PayStream's My Max, and an agency payroll (PAYE) can be difficult so we thought we would explain the key differences to you. For example, do you know which one supports contributions into your personal pension through a salary sacrifice arrangement saving you £100’s in not only PAYE but also in National Insurance each month?
Here in this video we explain what benefits you can enjoy by choosing to work through an umbrella company in under a minute:
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Umbrella Company PayStream’s My Max umbrella |
Agency Payroll Pay As You Earn (PAYE) |
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|---|---|---|
| Continuous employment across all your assignments | ||
| Supports contributions into your personal pension through a salary sacrifice arrangement | ||
| One pension pot across all of your assignments | ||
| Employed under a contract of employment | ||
| Access to statutory sick pay | ||
| Access to statutory maternity, paternity or adoption pay | ||
| Access to comprehensive insurance package of employers liability, public liability and professional indemnity | ||
| Access to employee rewards scheme | ||
| Access to statutory bereavement leave | ||
| Access to statutory shared parental leave | ||
| Access to Online GP service at discounted price | ||
| Access to Personal Accident cover at discounted price | ||
| Allowable business expenses (if applicable) |
Under an umbrella company you become an employee of that umbrella company. This means you gain employment rights and protection. The agency will pay the umbrella company, who then after deducting all necessary employment costs, PAYE and NI contributions, will pay your salary. Take a look below to see the key features of an umbrella company:
Pay As You Earn (PAYE) is routinely when you become a worker of the agency. The agency is responsible for paying you. The agency must deduct all necessary employment taxes and NI contributions prior to paying you. Take a look below for some of the key features of PAYE:
In the UK, an umbrella company directly employs contractors and freelancers, generally those who work inside the IR35 regulations. An umbrella company's role is administrative and payroll-based - such as managing timesheets, calculating PAYE tax and NI contributions, invoicing the client, collecting monies and paying the contractor.
If you were to follow the agency payroll route, they are responsible for making all of the necessary deductions and paying your salary.
The main difference is the additional benefits you get when working through an umbrella company. With both an umbrella company and agency payroll you will have access to certain statutory benefits including sick pay. However, an umbrella company will employ you under a contract of employment so whether you carry out 1 assignment or 100 you'll be employed under the same contract. This gives you a record of continuous employment, which helps with mortgage and loan applications. It helps to ensure that you're on the correct tax code whilst also providing you with just one pension pot across multiple assignments.
You will also have the added benefit of an inclusive insurance package.
The way an umbrella company works is pretty simple. You become an employee of the umbrella company. This means that the agency will pay the umbrella company an umbrella rate, the umbrella company will deduct its costs (such as its umbrella margin, Employer’s NI, Apprenticeship Levy and holiday pay) and the remaining amount is then payable as gross pay. As the employer, the umbrella company deducts the necessary PAYE and national insurance contributions from the gross pay and pays your salary.
Umbrella companies are ideal for short term contracts or if you are new to the world of contracting. Staying with the same umbrella company gives you continuous employment which is important when applying for mortgages. There are no unexpected tax bills as your umbrella company makes all the necessary PAYE and NI deductions for HMRC. To view the full list of benefits, visit our Umbrella Company Benefits page.
