When placing contractors or temporary staff, there are numerous ways of paying the staff member for the work they have completed. The main ways are via a limited company (if the placement is outside of IR35) or via an umbrella company (if the placement is inside of IR35). However, there is also the possibility of paying candidates via the agency PAYE scheme which means the agency will make the correct deductions for tax and national insurance.

However, when paying candidates via the agency PAYE scheme, there are some considerations that need to be taken into account when calculating the true cost of the candidate as the candidates pay rate also has some additional agency costs before you add on the margin. These costs include: -

1. CANDIDATES PAYE RATE

This is the pay rate that the candidate would see on their payslip. This needs to be above the national living wage which for candidates aged 23 and over is currently £9.50 per hour, rising to £10.50 per hour from 1^st April 2023.

2. HOLIDAY PAY

This is the amount of holiday pay that is accumulated by the agency to cover the candidate when they take holiday. This is calculated as a percentage based on 28 days holiday per annum (20 days holiday plus bank holidays), but can increase if the holiday allowance is greater for the company they are working for. Based on 28 holiday days per annum this if often calculated as 12.07% but can be different depending on the number of hours or days worked over the year.

3. PENSION CONTRIBUTIONS

All candidates who are paid under the PAYE scheme are also part of the agency auto-enrolment scheme so the agency needs to account for the 3% employer contribution to the pension scheme whether the candidate is enrolled or if they decide to opt-out of the scheme.

4. EMPLOYERS NATIONAL INSURANCE

If the candidates are on the agency PAYE scheme, the agency needs to pay over the employer’s national insurance contributions to HMRC based on the candidates pay rate and their holiday pay allowance multiplied by 13.8%.

5. AGENCY MARGIN

Once these 4 costs have been calculated and added together this will give the true cost of the candidate and should be the same rate you are paying a candidate via an umbrella company. The agency can then add on their margin to this total cost of the candidate to formulate the charge rate to the client.

Whilst TBOS does not negotiate charge and pay rates for our TBOS clients, we do provide our agencies with calculators and advice on how to ensure that the rates have been calculated correctly and that the agency makes a margin on their PAYE placements. TBOS Freedom also has the capability of running PAYE contractors via this solution.

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