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Umbrella Company vs PAYE

What's the difference?

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?

What's the difference between PAYE and an umbrella? 

Our Accounts Assistant, Morgan, explains the difference between PAYE and umbrella in just 30 seconds.

Take a look

Umbrella company

The simplest way to describe an umbrella company is that you become an employee of the umbrella company. This means that the agency will pay the umbrella company, who then after deducting all of the necessary PAYE and NI contributions pay the contractor their salary. Take a look below to see the key features of an umbrella company:


Pay As You Earn (PAYE) is when the agency is the contractor's employer and is responsible for paying them. The agency must deduct employed levels of tax and NI contributions are calculated and paid before the contractor receives their salary. Take a look below for some of the key features of PAYE:

  • One of the differences, as mentioned above is that the umbrella company will make the necessary deductions and also calculate any tax relief on allowable expenses, where the contractor isn't subject to supervision, direction or control, this can result in an increase in take home pay.
  • Very little admin to do and the contractor simply submits their timesheets and logs expenses online.
  • The contractor will enjoy a continuous employment record which is handy for mortgage and loan applications. 
  • Access to statutory benefits and inclusive insurances, this means the contractor can do what they do best knowing they are covered. 
  • A good umbrella company, like My Max, will give contractors access to a free employee rewards scheme and other benefits like in-house financial advisors.
  • The agency is the contractors employer and therefore is responsible for paying the contractor.
  • Employed levels of tax and NI is calculated and paid.
  • The contractor submits their timesheets to the agency.
  • The contractor has access to certain statutory benefits, like statutory sick pay.
  • Tax relief on any expenses is not available.

Umbrella or PAYE - which is best for you? 

Download our easy to understand infographic that explains the difference between an umbrella company and PAYE. Or for more information contact our New Business Team on 0161 923 0201 (option 1).

Launch infographic

Are all umbrellas the same?

We often get asked by both potential contractors and recruitment agencies, what makes PayStream different from other umbrella company service providers? Our answer is simple...

Are all umbrellas the same?

Ready to get paid the easy way? Get your umbrella company quote today

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