Umbrella vs. Agency PAYE?

[mowog]

Hi all,

I'm new here, and also new to contracting.

I've been offered a 6 month public-sector contract with what seems to me like a fairly mind-boggling day-rate. I've been told by the recruitment agency that I can either be paid PAYE through them, or go through an umbrella company. Both they and all of the umbrella companies I've spoken to seem very keen that I should go for the latter option, and say that I would see more of my pay that way. But no one can seem to explain why, at least not in a way that makes sense.

My questions are...

1. Is that correct? Would I genuinely see more of my money going via an umbrella? Doesn't make sense to me, as tax and NI are fixed, and those guys charge a fee but the agency doesn't.
2. Is there any other advantage to going through an umbrella company that I'm missing that makes it worth the weekly fee?
3. Why would the agency also been keen that I should go via an umbrella?

I've spent days trying to figure this out and talking to very sales-ey type people at umbrella companies, but I'm none the wiser.

I read the excellent sticky post on comparing umbrellas, and if I understand correctly then the only way that makes sense to compare is in terms of the weekly fee. So if the agency doesn't charge a fee, why doesn't everyone choose to get paid that way?

Several of the umbrellas I spoke to tried to tell me that I would see a different day rate if I got paid straight from the agency, and that they get an 'umbrella rate'. Again, this doesn't really make sense - surely the client is willing to pay what they're willing to pay, end of?

Deeply, deeply confusing! Would be amazingly grateful if someone with more experience than I could enlighten me. Even just a bit.

Thanks!

[eek]

Unless we know the day rate and the terms attached to it we can't actually give you an answer (and unless the day rate is 4 figures we will have seen it before).

But try this chart as it may help..

PSC / Umbrella Rate
- Employers NI (13.4%)
- Apprenticeship levy (0.5%)
- Holiday pay (although this may sneak down below)
-pension bits
PAYE Rate
- Employee NI
- Income Tax
Take home pay

I suspect there is actually nothing between the final takehome amount if you go agency PAYE or Umbrella but we can't be certain. However if you wish to make the most of your money and want to pay it into a pension going for an umbrella company that offers salary sacrifice is your best bet.

[northernladuk]

Read the newbie guides and other links in the right hand side.

[mowog]

Unless we know the day rate and the terms attached to it we can't actually give you an answer (and unless the day rate is 4 figures we will have seen it before).

Sorry - it's £550 a day

[mowog]

Read the newbie guides and other links in the right hand side.

I have read quite a lot of the 'new contractor' guides on this site and others, but I honestly can't seem to find a clear answer to the Agency PAYE vs Umbrella question. Sorry if I'm being dim! If that's covered by one and I've missed it, perhaps you could point me in the right direction...?

[Amanensia]

The Umbrella companies want you to go through Umbrellas as that's their business.

The agency wants you to go through an Umbrella as it's hassle for them that they'd much rather someone else did. They can then just take their nice agency cut and move on to the next piece of meat. They may also be getting some commission from the Umbrella company.

Unless the agency would take a cut out of your rate to compensate them for processing the PAYE payments, and that cut was greater than the Umbrella margin, I can't immediately see any reason why your take-home would be lower under agency PAYE.

[northernladuk]

Unless the agency would take a cut out of your rate to compensate them for processing the PAYE payments, and that cut was greater than the Umbrella margin, I can't immediately see any reason why your take-home would be lower under agency PAYE.

Which was the case when I went inside for awhile.

OP. Can you pick your own umbrella or are you stuck with a list. If you can pick one then give Lucy a call at Clarity Umbrella. She will provide you with a detailed breakdown of exactly what you will be paying and why.
Go back to the client and ask them for exactly the same break down so you can see where the differences are and then you will have like for like.

IMO, you really want to be going with Clarity as they have an uncapped pension offering which will be way better than the agency option. By putting more in to the pension you be reducing the tax burden and end up with much more money in your pocket.

[eatenrifles]

In my own situation I found the differences between umbrella and agency PAYE to be as follows:

Agency
Would only pay into their own pension offering
Would only work on accrued holiday (put in a pot and paid out when you take days off)

Umbrella
Some would into my existing pension via salary sacrifice
All would pay holiday pay rolled up into weekly payment

The best option is to get full breakdowns from anyone you're interested in and compare. Legit umbrellas all come out around the same take home - the only difference is their margin. However, check the calculations; some base the weekly take home on [day rate*5*52-deductions] and you end up with a much higher figure than with a more realistic number of working weeks.

[mowog]

Can you pick your own umbrella or are you stuck with a list?

There's a list I'm afraid. Though it doesn't seem a terrible list, having read whatever reviews I can find for the companies on it.

Have finally got some clarity on one aspect. If I opt for agency PAYE then the rate is indeed lower - down to £477 - to cover their employers NI and pension contributions, apparently. Obviously you pay the same thing through an umbrella, but I guess it comes off visibly in your payslip. Have done the sums, for some reason it does indeed seem that straight PAYE on £477 does indeed result in a slightly lower figure than the full suite of Umbrella deductions on £550. Still not sure I get it, but for whatever reason it seems that an Umbrella is a better option.

Of those on the list that I've spoken to, I feel that Clipper or Danbro are probably the best bet. I obviously have no experience of either, but both have more good reviews than bad. Clipper are slightly cheaper (£20pw vs. £22pw).

Any thoughts on those two?

[northernladuk]

Do a Google search on both names. Danbro is definitely mentioned. Dunno about the other.

I would speak to Lucy and the agency to see if there is any chance they will add Clarity. Lucy will help you out a case to put to agent.