Worker beware! Umbrella vs PAYE rates

UK PROFESSIONAL DRIVERS FORUMS THE UK PROFESSIONAL DRIVERS FORUM (INTERACTIVE)
1

Hello, I have registered specifically to post this as I am concerned that a lot of drivers are getting ripped off by agencies and umbrella companies since IR35. I know that a lot of people will be wise to this already but it seems that a lot still are not so it is worth the time and effort to air this issue.

I have been a pro driver for 25 years including 18 at class 1. I have also spent a year or so working in an agency as a recruiter (although back on the road now). In that time I have worked for a lot of agencies, been paid through various means including PAYE, self employed, umbrella and LTD.

I recently went for a job close to my house. I live in Gosport and class 1 jobs are quite hard to find so I was interested. It’s a temp to perm job with a very well known agency supplying a very well known haulier who I have worked for in the past. The agency told me it was £11 an hour PAYE for the temp period. That’s about in line with local rates, maybe a bit lower, you can get £12 in Portsmouth, but as it’s 5 mins from my house I accepted that. Now, the trouble came when the agency mentioned they wanted me to be paid through an umbrella company and the equivalent rate is £13.20. I knew immediately that this wasn’t right, it just doesn’t equate. My experience working in the agency and also as a LTD driver told me this was just wrong. I spoke to the umbrella company who relented and said that they could pay me straight PAYE at £11 an hour. Out of interest the guy did the maths for me as I spoke to him and here it is…

I had worked out the PAYE take home pretty easily. For a 50 hour week it’s roughly…

11 x 50 = £550 less roughly 20% deductions is £440 plus your holiday pay is around £55 so take home £495.

Through the umbrella company he said I would take home £475 including holiday pay.

When I said there’s no point me being paid umbrella he more or less agreed simply saying the only benefit was that I could work through other agencies and keep all my tax through the same umbrella company. Not worth £20 a week to me!

Apparently if you earn over a certain amount there is a possibility to claim some expenses back through umbrella companies and maybe that would make a difference but my earnings will probably be below the threshold.

I want to make it clear that there’s nothing inherently wrong with umbrella companies. My issue is that agencies are trying to pull the wool over driver’s eyes and save themselves a bit of money by paying in this way. Agencies get kickbacks for the number of drivers they put through umbrella companies and if they can get away with giving a rate that is even a little bit below what it should be to be equivalent to PAYE then they are making a little bit on each driver each week.

I recommend that anyone working for an agency ask them the PAYE rate, the raw PAYE rate not including holiday pay. Then do the simple calculation above to work out roughly your take home pay for how many hours you are expecting to work. Then ask the umbrella company to tell you how much you would get paid through them. If it’s less then either the umbrella rate needs to go up or you need to insist on being paid straight PAYE. Or go and work for a better agency…

I hope this helps someone.

2

Edward397502:
Hello, I have registered specifically to post this as I am concerned that a lot of drivers are getting ripped off by agencies and umbrella companies since IR35.

They were getting ripped off before IR35. That extra £1-£2/hr over PAYE rates in no way compensated for the holiday pay and workplace pension contributions you didn’t get.

Now, the trouble came when the agency mentioned they wanted me to be paid through an umbrella company and the equivalent rate is £13.20. I knew immediately that this wasn’t right

Oh. Dear. This is what happens when little knowledge meets maths and you do the maths without factoring in all the components of the equation.

I had worked out the PAYE take home pretty easily. For a 50 hour week it’s roughly…

11 x 50 = £550 less roughly 20% deductions is £440 plus your holiday pay is around £55 so take home £495.

Yep, not factoring in everything. So lets do it properly. I’m assuming a 1257L tax code.

It’s £550 less 5% (workplace pension) from £120-£184, less 17% (WP + Class 1 NIC) from £184.01 to £241.73 and then less 37% (WP+NIC+Income Tax) from £241.74-£550

So it’s £550 less:
£43.92 NI
£61.65 tax
£21.50 Workplace pension contribution

= £422.93

Holiday pay will liable for NI, tax and also subject to workplace pension contributions and if added to the above weekly wage would have 37% deductions so it won’t be £55 take home, it’ll be £41.82 take home so total take home pay including holiday pay will be £464.75 assuming you’re not a blithering idiot stupid enough to opt out of the workplace pension. It’s most certainly NOT the £495 you made up.

If we’re back to calculating what you actually earn on PAYE for £550 gross wage it’s then plus 3% employer workplace pension contribution above lower threshold, an additional £12.90 to your top line. Including holiday pay and employer’s workplace pension contributions the top line for PAYE is actually £629.28

50 x the £13.20 they were offering is £660. If you account £20 for the umbrella company fee then for a 50hr week £13.20 works out about £10 a week in your favour over PAYE.

Apparently if you earn over a certain amount there is a possibility to claim some expenses back through umbrella companies

Not legally. Most of the umbrella company payslips I’ve seen seem to put a lot of money down for travel expenses, something which isn’t actually legal to claim for your journey from home to the first point of work and last point of work to home as HMRC class that as ordinary commuting.

3

Conor:

Edward397502:
Hello, I have registered specifically to post this as I am concerned that a lot of drivers are getting ripped off by agencies and umbrella companies since IR35.

They were getting ripped off before IR35. That extra £1-£2/hr over PAYE rates in no way compensated for the holiday pay and workplace pension contributions you didn’t get.

Now, the trouble came when the agency mentioned they wanted me to be paid through an umbrella company and the equivalent rate is £13.20. I knew immediately that this wasn’t right

Oh. Dear. This is what happens when little knowledge meets maths and you do the maths without factoring in all the components of the equation.

I had worked out the PAYE take home pretty easily. For a 50 hour week it’s roughly…

11 x 50 = £550 less roughly 20% deductions is £440 plus your holiday pay is around £55 so take home £495.

Yep, not factoring in everything. So lets do it properly. I’m assuming a 1257L tax code.

It’s £550 less 5% (workplace pension) from £120-£184, less 17% (WP + Class 1 NIC) from £184.01 to £241.73 and then less 37% (WP+NIC+Income Tax) from £241.74-£550

So it’s £550 less:
£43.92 NI
£61.65 tax
£21.50 Workplace pension contribution

= £422.93

Holiday pay will liable for NI, tax and also subject to workplace pension contributions and if added to the above weekly wage would have 37% deductions so it won’t be £55 take home, it’ll be £41.82 take home so total take home pay including holiday pay will be £464.75 assuming you’re not a blithering idiot stupid enough to opt out of the workplace pension. It’s most certainly NOT the £495 you made up.

If we’re back to calculating what you actually earn on PAYE for £550 gross wage it’s then plus 3% employer workplace pension contribution above lower threshold, an additional £12.90 to your top line. Including holiday pay and employer’s workplace pension contributions the top line for PAYE is actually £629.28

50 x the £13.20 they were offering is £660. If you account £20 for the umbrella company fee then for a 50hr week £13.20 works out about £10 a week in your favour over PAYE.

Apparently if you earn over a certain amount there is a possibility to claim some expenses back through umbrella companies

Not legally. Most of the umbrella company payslips I’ve seen seem to put a lot of money down for travel expenses, something which isn’t actually legal to claim for your journey from home to the first point of work and last point of work to home as HMRC class that as ordinary commuting.

Oh dear, this is what happens when some pedantic ■■■■ tries to look clever.

I did say it was a rough calculation. Even the guy from the agency admitted that I would take home less through the umbrella with those rates.

I do agree though that this has been going on longer than since IR35 but with so many drivers coming off LTD now I thought it worth a warning.

4

It just shows you that the agency will try and sell you umbrella whatever the circumstances. The usual selling point is tax savings on expenses like getting to work, lunch out etc etc. In this case they know the client is five minutes from your door and they still try it. Laughable, just an excuse to pay less. Much better to not incur the expenses in the first place by getting work close and taking a packed lunch.

As I have said before also, it is perfectly possible to get paid PAYE and still claim the tax back yourself with HMRC directly.

Edward397502:
When I said there’s no point me being paid umbrella he more or less agreed simply saying the only benefit was that I could work through other agencies and keep all my tax through the same umbrella company. Not worth £20 a week to me!

This notion is also a bit flawed. If you work for another agency, your first £120 a week is taken out of NI consideration for a start. Pulling the pay together only makes you worse off once the tax calculation is done and dusted at the end of the year.

5

Couple of things…1st holiday pay isn’t tax/NIC free, 2nd workplace pension doesn’t come in until after week 12 unless you insist on it? Not sure but definitely no auto enrollment from day 1 unless they changed that this year

6

No matter what way you work the figures out an umbrella company is another “expense” between your top line and what goes into the bank.They take your money from the company your working for and “pay” it to you taking a fee for doing so .
In my opinion they are just another set of leeches taking your money with no benefit to your bottom line .
Simply put - why can’t the company your working for pay you directly ?

7

It just occurred to me that the £13.20 is probably paid to the umbrella company WITHOUT employer’s NI (as opposed to employee’s NI) being sent separately. Once you have another chunk of NI, holiday pay and the umbrella company fee coming out, all of a sudden an extra £2.20 doesn’t look that great.

Perhaps Conor can redo the calculation taking that into account the employer’s NI and see what it comes out at then.

8

Why work for this crap? Even woeful hermes are paying top money on PAYE now…Unbrella is a total garbage rip off.

9

I’m not so sure paye is perfect , I get letters from the tax office on a regular basis saying I owe them money , not a lot , but imho not the sign up for paye & forget it