Tuesday Tidbit – PAYE and Umbrella Agencies

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This week we noticed that one of our agencies was paying contractors using umbrella companies the same hourly rate, and they were paying PAYE contractors. This meant that the contractors who were PAYE had a higher cost of sales than the umbrella company contractors as the PAYE contractors had to take into account holiday pay and employers NI contributions.

The agency had no idea that there was a difference in the cost of a PAYE and umbrella contractor and that they should be paying the PAYE contractors a lower rate than the umbrella contractors to compensate for these costs. We helped the agency to come up with some sales matrices for their staff so they could explain to the contractors the reason for the difference in the rates, giving the contractors the advantages of the two payment methods. This helped the agency to make the correct margin on the placements and eliminate the loss on the PAYE contractors.

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