The Role of the Umbrella Company: Do you know what you are signing?

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As the demand for supply teachers and supply agencies continues to grow, the role of an umbrella company in facilitating payments becomes increasingly significant enabling agencies to keep costs down to clients while maximising profit. Many agencies are now using this to pay most of their staff. But what does this mean and what do you need to be aware of?

What is an umbrella company?

An umbrella company is a business often used by recruitment agencies to pay temporary workers. In most cases, the umbrella company employs you and pays your wages. It does not find temporary work for you; this is done by the recruitment agency (also known as an ‘employment business’).

Why do agencies use umbrella companies?

It is cheaper for the recruitment business/ agency to pass on the payroll cost to the umbrella company and this in turn means that they retain a higher profit and can charge the client less than those running internal PAYE.

The umbrella company will then pass this cost on to you, often including a processing fee and then you will also pay the Employer NI (13.8%) which is usually covered by the recruitment business, in addition to your usual deductions- resulting in usually a much lower take home. It also means the Recruitment company do not have to spend time processing pay and answering pay queries.

How do agencies sell it to candidates?

They offer a higher daily rate to entice the candidate to be paid via the umbrella company, but most candidates are financially worse off for doing so. The companies are often unclear about the deductions they will incur and thus the candidate is often not fully aware of what they are agreeing to. Even if they offer PAYE via the umbrella company, there will still be an admin charge to process the pay.

Do I have to be paid via an umbrella company?

No, legally they have to offer you PAYE as an option. However, check the PAYE is via the business and not an umbrella company. Also, directly ask if there would be an admin fee attached.

Being paid PAYE through your agency

If you are truly PAYE via the Recruitment business, you will not be charged to process your pay and will only incur the legally required deductions of your NI, Pension (if enrolled), Tax and Student loan (if applicable). You may also be deducted repayments if the business is instructed via DWP for example (DWP will write to you to inform too).

In essence, while umbrella companies offer a streamlined payroll process for agencies, candidates must tread carefully, fully understanding the financial ramifications before committing. Always inquire, compare, and ensure clarity on the various payment options available to make an informed decision that best suits your financial interests and circumstances.

At Apple A Day, we are proud to have no umbrella company and pay via PAYE. If you’re considering becoming a supply teacher you can register with us here: https://appleadaysupply.co.uk/register/

 

 

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