As a recruiter, it’s important you know the difference between being on a pay-as-you-earn (PAYE) agency payroll and operating via an umbrella company, as this will affect the contractors you work with. Interpreting the pros and cons of each approach to make an informed decision will enable contractors to maximise their take home pay.
CONTINUITY OF EMPLOYMENT
If contractors are engaged via agency PAYE and have multiple roles across multiple agencies this will lead to multiple employment status’, which can impact tax codes and the ability to apply for credit.
All workers engaged via a contract of employment and taxed PAYE will have statuary benefits such as sick, maternity and paternity pay however umbrella providers typically offer enhanced benefit schemes for their employees such as financial planning, discounted holidays, discounts for supermarkets and restaurants, through to health and wellbeing discount which can be used in a range of places, such as gyms.
The most common pension scheme is NEST and although it serves its purpose to meet auto enrolment requirements, this scheme is far from favourable when it comes to fees to manage your funds. Umbrella companies will typically offer enhanced salary sacrifice schemes which tend to be a lot more favourable from both a tax and fee perspective.
It’s worth contractors looking at the insurances offered by both agencies and umbrella companies before they make any decisions. A basic level of insurance needs to be in place for work to be carried out, but some providers offer additional cover including health insurance and life and accident cover. This added value should not be underestimated, as nobody knows what the future might hold.
UMBRELLA PROVIDERS AS ADVISORS
A lot of the large umbrella providers are also chartered accountants, putting them in a good position to advise contractors of their options. These professionals provide accounting services for both umbrella and limited companies, giving them a solid overview of the options, so contractors can obtain their counsel in these matters.
For more advice on the two ways of working and what recruiters need to know, get in touch with Brookson.