Agency PAYE vs umbrella company: Which is best for me?

When it comes to contracting, there are a number of ways you can operate as an independent worker. Although the most popular choices are undoubtedly through your own limited company or an umbrella company, there is also the option to work via an agency PAYE.

This basically means you will work through a particular agency as a part of their payroll – but only if they provide you with this option. If they do not then it’s either and umbrella company or a limited company.

Like an umbrella company, operating through an agency PAYE removes a considerable amount of hassle from your contracting life, but what are the main differences between the two?

Rates of pay

Generally, you’ll get a higher rate of pay working through an umbrella company than you would if chose to take a contract through an agency.


If you choose to work through an agency you will forfeit your ability to offset legitimate business expenses against your income. As an umbrella company employee you may be able to claim business expenses against your earnings, offering you more flexibility in this area.

Claiming expenses is part and parcel for a contractor and so it may be wise to consider the option which enables you to do this.

Before you decide on an umbrella company it is always wise to see what they can offer you in terms of expenses and their specific policies relating to this.

NICs and tax

Essentially, this works out the same whether you work through an agency PAYE or an umbrella company. In both instances, National Insurance Contributions (NICs) and tax are deducted at source and so there are no additional costs of charges.

When it comes to payroll calculations, both options will take care of this for you, leaving you more time to focus on your work or obtaining a better work/life balance.


The same applies as the above for invoices. In both cases your invoices should be raised and sent to the client on your behalf, removing the need for you to chase up the client once the invoice has been sent over to them.

Contractor insurance

Any good umbrella company will offer you a full insurance package which not only looks after your interests but also your client’s in the event of an accident where their property is left damaged.

Not only does this ensure that you are covered in the event of a problem onsite, it also means you don’t have to spend time looking for the right policies to cover yourself as it’s all done for you.

So which is best for me?

Overall, it is generally more beneficial for a contractor to use an umbrella company as opposed to an agency PAYE. While both remove a significant amount of hassle in terms of paper work, tax calculations and insurance procedures, the financial positives are far better with an umbrella company.

Higher rates of pay and the ability offset expenses against your income are two of the main reasons why most contractors take the umbrella route over agency PAYE.

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