Bluestones Medical

What's the truth?

In the world of agency work, there’s often confusion surrounding payment structures, particularly when it comes to PAYE (Pay As You Earn) and umbrella companies. We recently conducted a poll that aimed to shed light on common misconceptions, asking workers which statement they believed to be true regarding hourly rates and gross wages in these two systems.

The options presented were:

  1. Hourly rate is lower with PAYE
  2. Gross wage is lower with PAYE
  3. Hourly rate is higher with umbrella
  4. PAYE and Umbrella Rates are comparable
PAYE vs Umbrella

Surprisingly to many, the correct answer is that PAYE and umbrella rates are comparable. Many believe that PAYE consistently offers lower hourly rates or gross wages compared to umbrella companies.

So, why does this misconception persist?

One reason might be the lack of transparency in how umbrella companies operate. At first glance, the gross pay figure from an umbrella company often appears higher than a PAYE equivalent. However, this doesn’t tell the whole story.

Umbrella companies typically quote an “uplifted” rate that includes their fees and costs. When these are deducted, along with employer’s National Insurance contributions and any other employment costs, the final hourly rate for the worker often aligns closely with what they would receive under PAYE.

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It’s crucial for agency workers to understand this parity. The choice between PAYE and an umbrella company should not be based on perceived financial advantages, as these are often illusory. Instead, workers should consider other factors such as convenience, additional benefits, or personal tax circumstances.

For those considering umbrella companies, it’s essential to carefully review their fee structures and understand exactly how your pay will be calculated. Some umbrella companies may offer additional benefits or services that could influence your decision, but these should be weighed against any associated costs.

On the PAYE side, while the gross figure might initially seem lower, it’s important to remember that employer costs are already accounted for. What you see is generally what you get, without hidden deductions.

This poll highlighted the importance of financial literacy in the agency work sector. By dispelling myths and promoting accurate information, we can empower workers to make informed decisions about their payment structures.

Whether you choose PAYE or an umbrella company, your take-home pay is likely to be similar. The key is to look beyond surface-level figures and understand the complete picture of your employment arrangement. As always, when in doubt, seek advice from ourselves and you can visit our FAQ page for more information.

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