Reply to: Newbie Question - Agents/Umbrella Companies

[Stevie Wonder Boy]

Thanks. So what would Hays then charge my employer? I'm trying to nail down exactly what we mean by day rate.

If I ask my employer for a day rate of £300, in the typical language convention would that mean Hays would charge my employer £300, and then I would have to take of the PAYE service cost of that? If that's the case, clearly I want to ask or a higher day rate.

How would the PAYE service charge be levied upon me? Is it just deducted from my Hays payslip as an after tax adjustment? Or would it just be deducted before the final gross pay they give to me.

Ah ... The reason nobody is giving you an exact figure is because of the devilishly complicated UK tax system.

So for instance, if you are employed they will have to pay employers NI (not on your payslip @ 13.8%) and employee NI on your payslip.

So in your scenario, Employer pays Hays £300, Hays adds on commission - £10 to £50 a day. Hays pays NI employer taxes at 13.8% and takes that out of your gross. Then pays you as per any online salary checker. So in the neighbourhood of £450 - £500 a day would be about right.

[stek]

For all charges that are not incurred purely because of the agent's additional NI burden from employing me, would £5 per day be typical? Or is that just your example? What are the typical ranges one should expect?

Thanks again.

Well I'm in Ireland at the moment, more or less have to work via brolly/PAYE, otherwise I'd use my limited, and I'm charged €140 a month.

And the per diem thing is a misnomer, you'd pay the full fee even if you worked one day that month, so budget £1200/1500 per annum.

Don't forget holiday pay/sick pay if you get that on your FTC, otherwise it comes out of the day rate you agreed.

A lot to consider, most of here don't plan on continuous work, we add for not working/searching for work too in our rate, so you'd need to adjust for that too - remember most of us are three pay checks away from bankruptcy....

[ok cub 2008]

Your employer will become your customer, you will be billing them a daily rate. Or rartge Hays will on your behalf, effectively then Hays become your employer.

So they would bill the 300 in your example, deduct the fee as it woukd be tax allowable and pay over the tax, EENI and ERNI to HMRC.

Whats left is yours. Given all that you can expect to be taxed at an effective rate of around 40%

So basically the crux is you have to up your rate to cover the ERNI and the management fee. Your client wont be interested in anything other than the bill per month.

Its up to you to ensure your happy and so is your client because its a business to business realtionship now.

For all charges that are not incurred purely because of the agent's additional NI burden from employing me, would £5 per day be typical? Or is that just your example? What are the typical ranges one should expect?

Thanks again.

[northernladuk]

Why don't just go get a proper contract outside IR35 and keep more money. What you are doing isn't contracting. It's just messing about with a different payment mechanism.

[ok cub 2008]

Your employer will become your customer, you will be billing them a daily rate. Or rartge Hays will on your behalf, effectively then Hays become your employer.

So they would bill the 300 in your example, deduct the fee as it woukd be tax allowable and pay over the tax, EENI and ERNI to HMRC.

Whats left is yours. Given all that you can expect to be taxed at an effective rate of around 40%

So basically the crux is you have to up your rate to cover the ERNI and the management fee. Your client wont be interested in anything other than the bill per month.

Its up to you to ensure your happy and so is your client because its a business to business realtionship now.

Ok, thanks very much, that's the clearest answer I've had. So when I ask my company what day rate I would like, they are going to be expecting to pay that amount over to the agent, so really I've got to build in an uplift.

I hope you can see that it's not trivially obvious to someone new to contracting that this would be the case, particularly in my specific circumstance given that the only role Hays effectively plays is to be mechanism by which my employing company can circumvent the pay restrictions imposed by HR policy. It could just as easily be that the convention is for me to agree a pay amount with my current employer, then they tell Hays who build in an uplift to what they charge to my employer.

[stek]

Thanks. So what would Hays then charge my employer? I'm trying to nail down exactly what we mean by day rate.

If I ask my employer for a day rate of £300, in the typical language convention would that mean Hays would charge my employer £300, and then I would have to take of the PAYE service cost of that? If that's the case, clearly I want to ask or a higher day rate.

How would the PAYE service charge be levied upon me? Is it just deducted from my Hays payslip as an after tax adjustment? Or would it just be deducted before the final gross pay they give to me.

Your employer will become your customer, you will be billing them a daily rate. Or rartge Hays will on your behalf, effectively then Hays become your employer.

So they would bill the 300 in your example, deduct the fee as it woukd be tax allowable and pay over the tax, EENI and ERNI to HMRC.

Whats left is yours. Given all that you can expect to be taxed at an effective rate of around 40%

So basically the crux is you have to up your rate to cover the ERNI and the management fee. Your client wont be interested in anything other than the bill per month.

Its up to you to ensure your happy and so is your client because its a business to business realtionship now.

[ok cub 2008]

So you’re looking at another 13% or so on top of 300 a day for ERNI, call it 350, plus the management fee, lets call that a fiver a day, 355 a day is what you should ask for.

Go for 400 that will net you about 5k a month.

Of course that doesnt account for any holiday pay, sick pay or pension contribs.

Thanks. So what would Hays then charge my employer? I'm trying to nail down exactly what we mean by day rate.

If I ask my employer for a day rate of £300, in the typical language convention would that mean Hays would charge my employer £300, and then I would have to take of the PAYE service cost of that? If that's the case, clearly I want to ask or a higher day rate.

How would the PAYE service charge be levied upon me? Is it just deducted from my Hays payslip as an after tax adjustment? Or would it just be deducted before the final gross pay they give to me.

[ok cub 2008]

So you want to end up with 300 in your hand after all taxes and charges? Which is equivalent to around a 500 quid a day rate with another 15% agent fees and a 100 quid a month for payroll. So about 700 quid a day cost to your client? . Jesus. You must have been paid a lot in the FTC role.

Plug some numbers in to this.
Contractor Take Home Pay & Expenses Calculator | Parasol

I guess the upshot for the client is they now have the option to finish you on the spot with no comeback at all.

No, in my example I said I want to end up with a situation which is equivalent to normal employment on a gross pay of £300 per day. Yes, obviously all I care about is the after tax amount, but for the purpose of my example I was using gross pay equivalent.

I appreciate your responses, and I feel like you have all the information to answer my question, but you're not quite getting to the root of what I'm fundamentally asking.

I will take your advice and contact Hays directly.

[stek]

When you say I will be liable for the employer's NI, are you saying I would be charged for the employer's NI on my payslip? This is exactly what I'm trying to clarify. If I say I want a day rate of £300, I mean on my payslip the gross pay should be £300 per day, with only Tax and EE's NI deducted.

So you’re looking at another 13% or so on top of 300 a day for ERNI, call it 350, plus the management fee, lets call that a fiver a day, 355 a day is what you should ask for.

Go for 400 that will net you about 5k a month.

Of course that doesnt account for any holiday pay, sick pay or pension contribs.

[northernladuk]

So you want to end up with 300 in your hand after all taxes and charges? Which is equivalent to around a 500 quid a day rate with another 15% agent fees and a 100 quid a month for payroll. So about 700 quid a day cost to your client? . Jesus. You must have been paid a lot in the FTC role.

Plug some numbers in to this.
http://www.parasolgroup.co.uk/take-home-pay-calculator/

I guess the upshot for the client is they now have the option to finish you on the spot with no comeback at all.

[ok cub 2008]

IMO the 300 a day will not include any charges for brolly or PAYE. That's your problem now. It'll be 300 a day if you don't use their PAYE or 300-PAYE service charge. Bit rich asking a client to pay your day rate as a contractor and then expect them to pay your business costs.
That said you do say you are in a strong bargaining position...

I understand where you're coming from, but you're slipping into the trap of thinking the terminology of any of these elements of the agreement have any meaning.

Ultimately, I want to end up with amount X, but I'm weary of what amount my employer would be willing to pay. Whether that's achieved by having a higher day rate, with "business expenses", as you call them, deducted before I get paid, or a lower day rate but with the client incurring the burden of a higher mark-up, is completely irrelevant.

[northernladuk]

When you say I will be liable for the employer's NI, are you saying I would be charged for the employer's NI on my payslip? This is exactly what I'm trying to clarify. If I say I want a day rate of £300, I mean on my payslip the gross pay should be £300 per day, with only Tax and EE's NI deducted.

Surely that's not gross then. You will get paid 300 a day. Everything else has to come out of that and you take the rest home.
You are entering a completely different financial structure so you can't compare them like for like.

Pick up the phone to Hays and get them to explain how they do it and the pick up the phone to Lucy at Contractor Umbrella and get them to explain how they do it and then you'll know.

[northernladuk]

IMO the 300 a day will not include any charges for brolly or PAYE. That's your problem now. It'll be 300 a day if you don't use their PAYE or 300-PAYE service charge. Bit rich asking a client to pay your day rate as a contractor and then expect them to pay your business costs.
That said you do say you are in a strong bargaining position...

[ok cub 2008]

I'd imagine the fee for managing this would be same as a brolly - £100-150 a month?

A drop in the ocean really compared with the holiday pay/ERs NI factor, the employer won't be liable for anymore and you will be.

When you say I will be liable for the employer's NI, are you saying I would be charged for the employer's NI on my payslip? This is exactly what I'm trying to clarify. If I say I want a day rate of £300, I mean on my payslip the gross pay should be £300 per day, with only Tax and EE's NI deducted.

[stek]

I'd imagine the fee for managing this would be same as a brolly - £100-150 a month?

A drop in the ocean really compared with the holiday pay/ERs NI factor, the employer won't be liable for anymore and you will be.