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Umbrella Company vs Agency 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?

Why choose to work through an umbrella company? 

Here we explain what benefits you can enjoy by choosing to work through an umbrella company in under a minute:

Umbrella Company

PayStream's My Max umbrella

Agency Payroll

Pay As You Earn (PAYE)

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)

Umbrella company

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:

  • Very little admin to do; you simply submit your timesheets and log expenses online.
  • You enjoy a continuous employment record which is handy for mortgage and loan applications.
  • Access to full statutory benefits.
  • Inclusive insurances, meaning you can do what you do best knowing you are covered. 

Agency PAYE

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:

  • You submit your timesheets to the agency.
  • Some statutory benefits, like statutory sick pay are still available to you.
  • You will not build continuous employment, particularly if you use multiple agencies to source your assignments.

Umbrella Company vs Agency PAYE FAQs

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.

Try our new umbrella take home pay calculator

We'll give you a quick estimate of how much you can expect to take home on a weekly or monthly basis. Or for more information contact our New Business Team on 0161 923 0201 (option 1).

Calculate your take home pay

Are all umbrellas the same?

There are lots of umbrella companies out there, some promising different levels of take home pay and different levels of support, so who do you believe and who do you choose? Remember that if it sounds too good to be true, it probably is! Here are some tips and general advice for how to spot the heroes from the villains.

Are all umbrellas the same?
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