Reply to: Are contracts more or less the same when comparing Umbrella to Outside IR35?

[Speedbird676]

3. They save on employer tax, pension contributions, holiday pay etc

And that!

[Paralytic]

I doubt it. Most organisations use contracotrs for one of two reasons:

1. They have an FTE quota and contractors aren't included in it, so it is a way of increasing headcount via the back door.
2. They need to flex up and flex down depending on demand, especially in a project environment. It doesn't make sense to suddenly take on a whole load of resource that you then have an ongoing commitment to.

3. They save on employer tax, pension contributions, holiday pay etc

[Speedbird676]

This is why big corporations are loving IR35, they are going to be forcing everyone in to perm positions for half the rate

I doubt it. Most organisations use contracotrs for one of two reasons:

1. They have an FTE quota and contractors aren't included in it, so it is a way of increasing headcount via the back door.
2. They need to flex up and flex down depending on demand, especially in a project environment. It doesn't make sense to suddenly take on a whole load of resource that you then have an ongoing commitment to.

[LetterBox]

My client, in the South East, pays £500 per day. The pay scale for an equivalent permie role is £45-50k.

So, assuming £50k/year vs. £500/day, the comparison on net monthly take home would be:

1. Permie: £3,128
(assumes no pension contributions for fair comparison)

2. Ltd Company Contractor: £6,181
(assumes no pension contributions, no expenses, all equity extracted every year, £1,200 annual accountant fee for fair comparison with Umbrella)

3. Umbrella Contractor: £5,382
(assumes no pension contributions, no expenses, £1,200 annual umbrella fee)

Would I consider going from Ltd to Umbrella? Yes

Would I consider going from Ltd to Permie? No

What is the sector / skill set? Unless they are short contracts it seems a shed load of money for a client to give out (500 + agency slice) for a 45-50kpa body.

[ladymuck]

This is why big corporations are loving IR35, they are going to be forcing everyone in to perm positions for half the rate, saving millions for them. If they go umbrella because they can't find willing suckers to rip off as perm, they still win because they pay no VAT and they still have all the benefits of a contractor, easy to fire, no benefits, no bonus, no sick pay, no holidays. It's win win win for them.

If i was a big corporation I would be super happy about IR35.

Where did you get no VAT from? A client pays VAT to the umbrella company.

[PeterSim]

My client, in the South East, pays £500 per day. The pay scale for an equivalent permie role is £45-50k.

So, assuming £50k/year vs. £500/day, the comparison on net monthly take home would be:

1. Permie: £3,128
(assumes no pension contributions for fair comparison)

2. Ltd Company Contractor: £6,181
(assumes no pension contributions, no expenses, all equity extracted every year, £1,200 annual accountant fee for fair comparison with Umbrella)

3. Umbrella Contractor: £5,382
(assumes no pension contributions, no expenses, £1,200 annual umbrella fee)

Would I consider going from Ltd to Umbrella? Yes

Would I consider going from Ltd to Permie? No

This is why big corporations are loving IR35, they are going to be forcing everyone in to perm positions for half the rate, saving millions for them. If they go umbrella because they can't find willing suckers to rip off as perm, they still win because they pay no VAT and they still have all the benefits of a contractor, easy to fire, no benefits, no bonus, no sick pay, no holidays. It's win win win for them.

If i was a big corporation I would be super happy about IR35.

[Speedbird676]

My client, in the South East, pays £500 per day. The pay scale for an equivalent permie role is £45-50k.

So, assuming £50k/year vs. £500/day, the comparison on net monthly take home would be:

1. Permie: £3,128
(assumes no pension contributions for fair comparison)

2. Ltd Company Contractor: £6,181
(assumes no pension contributions, no expenses, all equity extracted every year, £1,200 annual accountant fee for fair comparison with Umbrella)

3. Umbrella Contractor: £5,382
(assumes no pension contributions, no expenses, £1,200 annual umbrella fee)

Would I consider going from Ltd to Umbrella? Yes

Would I consider going from Ltd to Permie? No

[northernladuk]

Possibly but we've said over and over again you can't just do a direct this equals that. They are two completely different beasts.

[LetterBox]

Not in my experience. My last gig was £425 in Manchester doing a role I know full well is 50-55k for perms. I do see plenty of posts on here where people are being offered the money you quote but certainly not true in Manchester. I've been watching for suitable perm roles and not seen anything over £60k in 4 months. Guess it depends what you do, where and how much the client wants you.

I see, my south east location has skewed my impression of perm salary / freelance rate then, yes it'll depend on what you do to a certain extent, but a 50k perm for me would equate to a 275, maybe 300 rate. Whilst I also said the inside vs perm was now very close, I also excluded potential bench time. Certainly a 425 inside rate is still better than a 50-55k perm.

[northernladuk]

Ok, understood, I just think reality for the most part will be a mirror.

As stated that's purely a coincidence but whatever.

Agree, but my thoughts were the reverse (hence initial post), the client placing a false 4 week notice period on a position you know by experience or digging is usually only 2. It should be easy enough to convince a client to return to the usual 2 week if you sell it correctly and look very unlikely to jump.

I doubt it will be a false 4 week notice. It's what they want. If they want 4 weeks it's 4 weeks. Not sure how digging will find it's 2. It's set by them. But fill your boots.

Not sure you can base 50k+benefits to £500, but there are many variables obviously. I've known £400 contractors jump into perm for over 70k+benefits, recently a £620 contractor jumped into perm for over 100k+benefits. I've worked at £500 with guys on 80k base+bonus benefits etc.

You can't and that's my point. You said 'it'll work out to an equivalent perm rate' and I'm showing you it won't. They are different beasts. Perms can earn 50k but contractors can do the same gig for £500. So nowhere near perm rate as you stated.

I have used those calcs, the results are the same as ever, I'm better off as an outside IR35 contractor, but it's not a night and day difference.

And given your £500, outside IR35 it'll be £121,647, an incredibly unlikely perm salary for a £500 role, inside IR35 with all those lovely costs incurred from those 'costs neutral' clients it'll be around £97,000. 80k base + 10-15% bonus + benefits. There isn't a lot in it.

Not in my experience. My last gig was £425 in Manchester doing a role I know full well is 50-55k for perms. I do see plenty of posts on here where people are being offered the money you quote but certainly not true in Manchester. I've been watching for suitable perm roles and not seen anything over £60k in 4 months. Guess it depends what you do, where and how much the client wants you.

Caveat to the above being that maybe permie salaries drop for those positions due to over supply of ex-contractors looking for perm themselves. This may well make inside IR35 rates look ok in comparison, but for now the gap has tightened from what I am seeing and those who I know have made moves over the last 2 years.

I must admit I don't think clients will purposely drop rates because of it. It will only lead to HR problems later so very short sighted. If they have a rate card for £50k I'm pretty sure most will stick to that. Larger ones that is. Maybe small companies will take advantage but they still want to get the best in so have to keep the rate up.

[LetterBox]

I don't think it will be mirrored. They may turn out to be the same but this isn't by design. The contract between client and umbrella is for that piece of work. The notice between you and brolly is for you leaving their employment however many different contracts you do. Neither are in anyway related.

Ok, understood, I just think reality for the most part will be a mirror.

You would negotiate the notice period of the contract as you would normally whilst getting the gig. It's not often contractors have been able to influence a clients notice period at the best of times so I'd imagine it's even harder when the client is well aware you are trying to drop the period so you can jump ship more easily.

Agree, but my thoughts were the reverse (hence initial post), the client placing a false 4 week notice period on a position you know by experience or digging is usually only 2. It should be easy enough to convince a client to return to the usual 2 week if you sell it correctly and look very unlikely to jump.

Yes it is unfair. Again, you are comparing apples and pears. Perms earn say 50k+benefits. You earn say £500. Completely different animals. The fact the two rates come out of at the same at the end is coincidence. It would be a bloody miracle as well. Inside IR35 at £500 is still way more than a perm.

Take out the guesswork and have a look at some of the calculators on here. With 8 weeks to go it's not the time for guess work anymore.

Put 500 in per day outside and it will tell you what you need to earn as a perm. You'll quickly see there is no way they are close.

Not sure you can base 50k+benefits to £500, but there are many variables obviously. I've known £400 contractors jump into perm for over 70k+benefits, recently a £620 contractor jumped into perm for over 100k+benefits. I've worked at £500 with guys on 80k base+bonus benefits etc.

I have used those calcs, the results are the same as ever, I'm better off as an outside IR35 contractor, but it's not a night and day difference.

And given your £500, outside IR35 it'll be £121,647, an incredibly unlikely perm salary for a £500 role, inside IR35 with all those lovely costs incurred from those 'costs neutral' clients it'll be around £97,000. 80k base + 10-15% bonus + benefits. There isn't a lot in it.

Caveat to the above being that maybe permie salaries drop for those positions due to over supply of ex-contractors looking for perm themselves. This may well make inside IR35 rates look ok in comparison, but for now the gap has tightened from what I am seeing and those who I know have made moves over the last 2 years.

[northernladuk]

Yes, but for the notice period it will all be mirrored, so for the question, it makes no difference. Yes, the umbrella COULD say I have to give 4 weeks notice where the client have agreed 1 week with the umbrella. But that seems highly unlikely, it appears very likely it'll just be a mirror of the client to umbrella for notice terms. Hence the original Q.

I don't think it will be mirrored. They may turn out to be the same but this isn't by design. The contract between client and umbrella is for that piece of work. The notice between you and brolly is for you leaving their employment however many different contracts you do. Neither are in anyway related.

You would negotiate the notice period of the contract as you would normally whilst getting the gig. It's not often contractors have been able to influence a clients notice period at the best of times so I'd imagine it's even harder when the client is well aware you are trying to drop the period so you can jump ship more easily.

Same rate as before but reductions for apprenticeship levy, employers NI, umbrella margin, versus top end perm offer with bonus benefits etc? Is it so unfair to say it'll work out to an equivalent perm rate? Yes, guesswork, but still.

Yes it is unfair. Again, you are comparing apples and pears. Perms earn say 50k+benefits. You earn say £500. Completely different animals. The fact the two rates come out of at the same at the end is coincidence. It would be a bloody miracle as well. Inside IR35 at £500 is still way more than a perm.

Take out the guesswork and have a look at some of the calculators on here. With 8 weeks to go it's not the time for guess work anymore.

Put 500 in per day outside and it will tell you what you need to earn as a perm. You'll quickly see there is no way they are close.

[LetterBox]

With umbrella you have a contract of employment. You don't have a contract with the client. That's between the brolly and the client. So it will be very different.

Yes, but for the notice period it will all be mirrored, so for the question, it makes no difference. Yes, the umbrella COULD say I have to give 4 weeks notice where the client have agreed 1 week with the umbrella. But that seems highly unlikely, it appears very likely it'll just be a mirror of the client to umbrella for notice terms. Hence the original Q.

Shouldn't be perm equivalent though. Should still be same daily rate or there abouts.

Same rate as before but reductions for apprenticeship levy, employers NI, umbrella margin, versus top end perm offer with bonus benefits etc? Is it so unfair to say it'll work out to an equivalent perm rate? Yes, guesswork, but still.

[ladymuck]

The pay isn't a perm equivalent though. A permie doesn't pay apprenticeship levy, employers NI, or an umbrella margin.

[northernladuk]

With umbrella you have a contract of employment. You don't have a contract with the client. That's between the brolly and the client. So it will be very different.

Shouldn't be perm equivalent though. Should still be same daily rate or there abouts.