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Recruiters – Which is better for you, Agency PAYE or Umbrella Company Employment?

Umbrella Company

For anyone who’s paying attention, it’s clear that umbrella company employment is better for most contractors than agency PAYE. Having your own payroll comes with the responsibility of accurately deducting taxes, providing employment rights, keeping up to date with legislation, statutory payments like sick pay and mat leave. It’s up to you as a recruiter whether you work with an umbrella company or engage contractors through your own payroll, and while you obviously want to look after your contractors, it’s worth considering what’s best for you too.

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What’s the difference?

Agency PAYE is where you engage contractors yourself and pay them through your own payroll system. Usually the contractor is engaged temporarily, for a particular assignment, and there is no engagement between assignments. The contract is between you and the contractor and if they stay with you for more then one assignment, they’ll have a number of distinct contracts.

Alternatively, the contractor can be employed by an umbrella company who will supply their services to you. Your contract is with the umbrella company, who issue a contract of employment to the contractor. Even if they have several assignments with you, the contractor will have a single, continuous employment with the umbrella company, and they remain employed between assignments.

Less cost and risk for you

Where the contractor is employed by an umbrella company, you are effectively outsourcing the cost, risk and work of employment to the umbrella. For example, in recent months Orange Genie have incurred substantial costs in furloughing our employees so they could access support through the Coronavirus Job Retention Scheme (CJRS). Costs included adapting our systems, seeking expert advice and paying our specialist staff as well as covering apprenticeship levy and employers NI for over 3,000 contractors, all while receiving no income at all.

We were happy to pay these costs as a fair price for supporting our employees, but if these contractors had been engaged on an agency PAYE basis, this responsibility would have fallen on their agencies. If you had contractors on agency PAYE who were unable to work while the UK was locked down, you will remember the stark choice between taking on the work and absorbing the cost, and leaving those contractors without support.

With reports that the infection rate is once again rising, there is a very real danger that further lockdown measures will be imposed. For recruiters in the UK, now is a very bad time to have large numbers of contractors working through agency PAYE.

If your contractors are currently with an umbrella company:

When the CJRS was first implemented in March, some contractors were excluded because they were new to their umbrella companies and had not been paid by them before the government deadline.
If lockdown measures are reinstated any government support is likely to have similar conditions. Switching now from an existing umbrella employer, either to agency PAYE or to a new umbrella, could leave your contractors ineligible for support in the event of a future lockdown.

Access to specialist expertise

Employing and paying contractors is the main business of an umbrella company, while it’s only a small part of what a recruitment agency does. Accordingly, a well-chosen umbrella company will have the specialist staff and dedicated infrastructure necessary to run high-volume payroll reliably and correctly, day after day. They will also be experts in employment, both in managing the relationships and complying with the ever-changing legislation.

All this adds up once again to work, cost and risk that you don’t have to deal with. Where your contractors are employed by an umbrella company, you don’t have the expense and work of running payroll, and dealing with contractor queries. Your relationship with the umbrella may also give you easy access to their expertise, should you need advice about payroll or employment legislation.

Happier contractors

We said umbrella company employment is better for contractors, and if they’re with the right umbrella company it really is. Employees of Orange Genie Umbrella get full employment rights, including sick pay, holiday pay, maternity/paternity pay and access to a workplace pension. They also get access to a range of additional benefits designed to help them make their money go further, take care of themselves and their families, and get more out of life as a contractor.

If you’ve spent any time managing contractors, you’ll already know what a difference this can make to you. When your contractors are happy with how they are treated and they feel valued, they’ll stay with you for longer, take less time off, create fewer queries and do a better job for your clients.

If you have any questions or if we can help in any way, please call our expert team on 01296 468 483 or email


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