If you are a contractor who has to decide on payroll, then this article is for you. If you have made that decision, you might be confused about whether to opt for payroll as an employment or agency PAYE. This article from Pearson McKinsey will solve that for you; read till the end to know how and what you should go for.
Difference Between Paye And Umbrella
If you are now being a sole trader or have been in the area for many years, payroll decisions are tough, and it’s important to be right, so you save yourself from the burden of IR35 and taxes. Here is a key takeaway of the difference between Paye and Umbrella.
What is a Paye?
PAYE, aka Pay, as you Earn, is a method where the contractor gets employed and paid for the duration of the contract they have with the company. The payment is conducted directly from the agency’s payroll.
What is an Umbrella?
Under the Umbrella system, the contractors are paid regularly on the basis of the fixed-term assignments. These companies play the role of intermediaries between the contractor and their end client.
Below given is a table stating the difference between Paye and Umbrella.
Paye vs Umbrella
|When you work for an agency payroll, the contract ends with the assignment.||This system lets you work with multiple agencies and have a continuous employment cycle with different agencies.|
|Not every agency associated with PAYE will give you insurance cover.||Some umbrella companies cover additional insurance such as accidental health cover without extra costs.|
|You have to bear no direct costs while working with an agency payroll.||When an employee decides to leave an agency payroll and come to an umbrella company, there are some costs involved. This cost is the margin umbrella charge for processing your payment and gives a tax benefit on margin to save a certain amount of taxation.|
|No tax returns are available.||You will have the chance to claim tax relief on certain expenses.|
|You get no such benefits in this method.||Street brand discounts, restaurant discounts, sick pay, maternity pay, and medical health plans are available.|
Our comparison of both the methods says that umbrella companies render a trouble-free service, letting you prioritise the primary work and not the admin tasks. However, you are the best to judge for your company, so it’s up to you to choose either of them. And if you are still stuck with it, get in touch with Pearson McKinsey; we can help you in a better way.