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Umbrella Company vs. Pay As You Earn (PAYE). What's the difference?

Kerry Hull

Kerry Hull | Marketing Manager

Tuesday 17th Jan, 2017

If you've decided that working through your own limited company isn't right for you, you may want to consider working through an umbrella company, rather than being paid through your agencies payroll.

The way an umbrella company works is pretty simple. The contractor becomes an employee of the umbrella company. This means that the agency will pay the Umbrella Company and the Umbrella Company, deducts the necessary PAYE and national insurance contributions and pays you your salary.

If you were to follow the agency payroll route, you essentially become an employee of the agency and they are responsible for making all of the necessary deductions and paying you your salary.

Both options mean that you don’t need to worry about taxes, complying with IR35 or keeping detailed accounts.

So, what is the difference between both options?

The first difference is that when an umbrella company is carrying out the necessary deductions, they will also calculate any tax relief on any allowable business expenses where the contractor isn't subject to supervision, direction or control. This could mean an increase in take home pay. So, contractors working through an umbrella company simply need to submit their timesheets and log their expenses online.

The next big difference is the additional benefits you get when working through an umbrella company.

With 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 one assignment or 100 you'll be employed under the same contract, giving you a record of continuous employment which helps with mortgage or loan applications. It also helps to ensure that you're on the correct tax code whilst providing you with just one pension pot. As with agency payroll, you also get access to statutory benefits such as maternity and sick pay but with the added benefit of an inclusive insurance package

If that's not enough, PayStream's umbrella service My Max, gives our contractors free access to our employee rewards scheme which provides discounts on thousands of high street brands and well known restaurant chains, as well as access to exclusive gym, cinema, car leasing and mobile phone discounts, not to mention a huge 60% discount off an annual Push Doctor membership.

We also provide free access to our in-house financial advisors who can provide help securing mortgages, loans and other financial products.

Even though it may seem that the way an umbrella company and agency payroll works is very similar, the additional benefits that can be had with working through an umbrella company are too good to miss out on. So, for more information on how our umbrella service could benefit you, please get in touch with one of the PayStream team today.

Ready to get paid the easy way? 
Call our New Business Team on 0808 164 4460 or 0161 923 0201 (option 1)

Find out more today!

Infographic - Umbrella company vs PAYE

It can be difficult to understand how an umbrella company differs from working through the agencies payroll, so let our infographic help to explain these differences.

View our infographic here