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

Kerry Hull

Kerry Hull | Marketing Director

Monday 17th Feb, 2020

If for whatever reason you are no longer able to work through your own limited company or have decided that it's no longer the right option for you, you may want to consider working through an umbrella company, rather than being paid through your agency's 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 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 to the contractor as gross pay. As the employer the umbrella company, deducts the necessary PAYE and national insurance contributions from the gross pay and pays you your salary.

If you were to follow the agency payroll route, you essentially become an agency worker 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, where eligible, 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 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 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.

You will also have the added benefit of an inclusive insurance package, something you won't get if you were to be paid via agency payroll.

If that's not enough, PayStream's umbrella company 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.

We also provide free access to our independent 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 company could benefit you, please get in touch with one of the PayStream team today.



For more information about our umbrella service by hitting the button below or 
call our New Business Team on 0808 164 4460 or 0161 923 0201 (option 1)

Here's an overview of My Max

What is an Umbrella Company?

An umbrella service gives you legal employee status and handles all the paperwork. It's the simplest solution for most contractors, with no unexpected tax bills and because you have one continuous employment it's much easier to secure important things like loans and mortgages too.

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