Agency PAYE and Umbrella Company: Explained

Agency PAYE and Umbrella Company: Explained

Choosing the right payroll is key to getting the maximum benefit for your services. After securing a contract or employment, workers often get two options to select from: Work through an Umbrella company or become an Agency PAYE employee. 

While the selection may look complex, you can easily make an informed decision with little research and the right advice. In pursuit of this, this guide stipulates every minute detail you need to know about Umbrella Company vs. PAYE.

What is an agency PAYE worker?

As the name suggests, Pay As You Earn (PAYE) contractors, or any workers, are hired directly by the recruiting agency for a specified period or contract in this payroll arrangement. The workers become agency employees for a specific tenure and receive payments minus tax deductions. 

Every PAYE worker becomes eligible for worker’s rights like permanent employees after 12 weeks of employment (Agency Worker Regulations, 2010). However, they are entitled to the national minimum wage and the statutory minimum level of paid holiday from day one.

Simply put, temporary employment lasts for a period of your assignment. After completion of the assignment, your employment is terminated.

What is an Umbrella Company?

An Umbrella company is an intermediary between a contractor or freelancer and the end-hirer or agency. It also provides payroll services to contractors who have fixed-term assignments. Unlike Agency PAYE, contractors remain on the payroll of umbrella companies even after the completion of the contract. Additionally, contractors can also work on more than one assignment in this payroll arrangement. 

To put it simply, an Umbrella company directly employ temporary workers or contractor and are responsible for tracking, preparing, and managing their:

  • Managing Timesheets
  • Deducting Taxes and NI contributions
  • Generating Invoices
  • Invoicing the Agency
  • Paying the contractor

Overall, the Umbrella company is responsible for administrative and accounting aspects.

What is the Difference Between Agency PAYE and Umbrella Company?

It is vital to weigh out different options before selecting an Agency PAYE or an Umbrella company. Some of the important driving factors for your decision should be HR support, costs, and benefits. Let us discuss each in brief. 


While there are no direct costs involved in working with an Agency PAYE company, you might have to forgo some margin of costs while working with an Umbrella company. 

Generally, Umbrella Companies offer high take-home pay, but it is important to calculate the taxes and National Insurance contributions deducted by these companies. 


Expenses are also a key factor to consider. While the payment method for both arrangements remains PAYE, there might be some additional expenses associated with an Umbrella company. However, you should not include essential expenses like phone bills, travels costs, or stationery costs in additional expenses. 


Contractors should not avoid the importance of quality HR support when selecting between Agency PAYE or Umbrella company. An Umbrella company’s source of income is mostly contractors or freelancers. So they work in your best interest for mutual growth. 


In both payroll arrangements, you become an employee. However, in Umbrella company, you remain an employee of the company even after the completion of your contract. So, you continue to enjoy the benefits such as ease of applying for credit or mortgage. But, in agency PAYE, you have to face different terms with every new contract. 

Take-home pay

As some margin of costs is involved in working with an Umbrella company, you should expect a higher Take-home pay from an Umbrella company than Agency PAYE. 

Agency PAYE Vs. Umbrella Company: Which is better?

An Umbrella company is the best option if you: 

  • Do multiple contracting simultaneously
  • Want security and perks of continuous employment
  • Want good HR support and better benefits

Otherwise, choose an Agency PAYE, if you

  • Want to work on short contracts
  • Want to avoid being managed by a third party


Whether you are a new or seasoned contractor, it is advisable to weigh your options before selecting an agency, PAYE, or Umbrella company. In this article, we have tried to give you a brief outlook on both options. However, while the final decision remains on your personal needs and preferences, consult a professional advisor to make an informed decision. 

About the author

Ombir Sharma

Ombir is a SEO Executive at The Next Hint Media, Inc. He is a SEO and writer has 2 years of experience in these respective fields. He loves spending his time in doing research on different topics.

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