PAYE vs umbrella
Why we don’t pay our nurses through umbrella companies
There are two simple reasons why we don’t pay our nurses and midwives via an umbrella company or allow a third party to manage their payments.
- We don’t believe that these schemes generally benefit our workers
- We’re concerned that many of them may not comply with HMRC rules
This is a complex area and causes a lot of confusion, so here is our thinking on three common misconceptions:
Misconception 1
I can keep up to 90% of my hourly pay rate.
An umbrella company that promises you can take home up to 90% of your salary may be operating a tax avoidance scheme. It could be a contractor loan scheme or some other model that may be open to challenge by the tax authorities.
HMRC have strict policies on tax avoidance schemes, and getting involved with one of these schemes may result in a large tax bill for workers if the scheme turns out not to be compliant with the rules. An umbrella company must process PAYE and NI contributions, holiday pay, and adhere to the National Minimum Wage in the same way as an employer who would pay you directly. However, an umbrella company will charge you for their services, whereas direct payroll through Thornbury and many other agencies is free. There may be a small benefit to an umbrella worker if you can legitimately claim expenses (see point 3) but this is often out weighted by the fees they charge.
Our advice:
- Check what fees you are paying through your umbrella company and ask what you are getting in return for these fees. Compare your take home pay to what you would get if your agency paid you directly.
- If it seems too good to be true it probably is, and it will probably be challenged by HMRC. See HMRC advice here.
Misconception 2
I’ll get paid quicker through my umbrella company.
When you work for an umbrella company your pay date is generally dependent on when the umbrella company is paid by the agency. Most agencies pay their workers directly once a timesheet has been submitted, so there’s no delay in payment. At Thornbury you’ll be paid directly up to four times a week, without any need for another comapny to be involved. It’s simple. Submit your timesheet and we’ll process it straight away.
Our advice:
- Shop around – ask your agency and umbrella company how frequently they pay and if they rely on third party payments first. Reputable companies generally pay more than once a week and process timesheets very quickly.
- Check the recruitment bodies’ code of conduct to ensure you are being paid correctly. See Principle 8 of the REC guidlelines here.
Misconception 3
I’ll get paid more per hour if I am working through an umbrella company.
If you’re working through an umbrella company that follows HMRC rules and they deduct your tax and NI correctly, by the time you’ve paid their fees for processing your pay you may well be earning less than a PAYE worker.
An umbrella company may process some expenses which they claim can be offset againse your taxable earnings, often saying they have a ‘special expenses dispensations from HMRC’. However, in 2016 changes were made to travel and subsistence expense claims which meant umbrella workers working under supervision (ie most nurses and midwives) could no longer get tax relief for work-to-home travel. So if you’re receiving expenses relief and are employed as a nurse or midwife through your agency, it is possible the umbrella company is not complying with the rules. At Thornbury, we pay a mileage and travel allowance which is open and transparent and taxed in the normal way, complying with all HMRC rules.
Our advice:
- Take a look at the example above which may help you understand how pay is processed as direct PAYE vs typical umbrella company processes.
- Check the expenses are being processed legitimately.
- Check what expenses your agency pay you to travel to a shift or if a shift is cancelled at short notice.
If you are genuinely concerned about your current arrangements with an umbrella company, we urge you to switch to direct payment / PAYE solutions with your agency. We strongly believe nurses should be paid the best possible rates for what can be a challenging and demanding role.