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Umbrella or PAYE: which is better?

As a contractor, deciding between an umbrella company and agency payroll can indeed be challenging. Here’s a break down of the key differences to assist you in making an informed choice.

How does an umbrella company work?

The process is straightforward. You become an employee of the umbrella company. The agency pays the umbrella company a set rate (the umbrella rate). The umbrella company then deducts its fees (including its margin, employer National Insurance, Apprenticeship Levy, and holiday pay provision). The remaining amount becomes your gross pay.

What’s Agency Payroll (PAYE)

With agency PAYE, you become an employee of the agency itself. Making it similar to regular employment as the agency pays you after deducting taxes and National Insurance with some statutory benefits, but no continuous employment record.

How do they differ?

When working through an umbrella company you will submit your timesheets and expenses online as opposed to working PAYE in which you are temporarily employed by the agency on a contract by contract basis and will be responsible for submitting your timesheets to agency.

Both options ensure your necessary employment taxes and NI contributions are deducted but the main difference is the additional benefits that come from working through an umbrella company.

Additional benefits


Continuous Employment

Unlike agency PAYE, which restarts with each assignment, an umbrella company gives you a steady employment record no matter how many different assignments you work. This is a big help when trying to apply for mortgages and loans.


Full Benefits

Enjoy statutory benefits such as sick pay, bereavement and parental leave.


Pension contributions

An umbrella company, such as Focused, can help you contribute to a personal pension through salary sacrifice. This can save you hundreds on income tax and National Insurance each month, whilst increasing the size of your pension pot.



Access to comprehensive insurance package of employers’ liability, public liability and professional indemnity.



With Focused you can get access to thousands of discounts on everything from family days out, to cashback on high street retailers and supermarkets.


Simplified Admin

Forget paperwork! You just submit timesheets and log any eligible expenses.

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    Looking an umbrella company?

    If you need a prompt, accurate and reliable umbrella company, choose Focused. We take care of everything, so you can focus on what matters to you

    It only takes a few short minutes to register your details with us. To get in touch, simply call 0161 923 0210  and let us take it from there.

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