Most commonly, freelancers and contractors either set up a limited company and become the sole Director, or use an umbrella company for their payroll. After some recent changes in legislation, umbrella companies have become more popular. However, do you understand how your candidates’ pay is calculated? Our latest blog will explain how umbrella companies pay your candidates’ and summarises the deductions that are made.
Margin
An umbrella company will charge your candidates a margin to process their PAYE payroll and this amount will vary amongst providers. The margin is the only income that a compliant umbrella will make from your candidates and the amount will be deducted before calculating your candidate’s taxable income – reducing the overall cost.
National Insurance (Employers and Employees)
When your candidates register with an umbrella company, they officially become an employee of theirs. However, because they are not directly benefitting the umbrella company because they will be working for a different end client, your candidates will be required to cover both Employees National Insurance (which is 12 percent for those in Category A) and Employers National Insurance (13.8 percent).
Holiday Pay
Your candidates will be entitled to Holiday Pay and this is calculated as 12.07 percent of the National Minimum Wage. They will be able to decide if they want the umbrella company to keep hold of this amount so they can be paid it in a lump sum, or if they want to claim it immediately. Your candidates should be aware that in order for them to actually benefit from Holiday Pay, they should negotiate this in their contracts.
Apprenticeship Levy
Every organisation in the United Kingdom with an annual turnover of £3 million or more will be required to pay the Apprenticeship Levy (0.05 percent of their annual turnover). As a result, the introduction of this legislation made umbrella companies more attractive to recruitment agencies, as having their candidates on another company’s payroll reduced the likelihood of their business needing to pay this levy.
Because your candidates will be employees of the umbrella company but not directly benefitting them, this levy us passed onto them and will be a deduction on their pay slip.
Services and Inclusive Extras
The level of service that umbrella companies offer varies from provider to provider. Some umbrella companies will provide payroll – and nothing else. Churchill Knight Umbrella on the contrary provides a comprehensive payroll service with excellent additional features. This helps to ensure your candidates benefit from wonderful value. When your candidates register with Churchill Knight Umbrella, they will instantly be able to take advantage of:
- £10 million Public Liability insurance.
- £10 million Employers Liability insurance.
- £5 million Professional Indemnity insurance.
- Same Day Faster Payments, meaning your candidates will be paid as soon as we receive their funds. Payroll is run on the hour at Churchill Knight Umbrella.
- No joining fees, no leaving fees and no hidden fees throughout their time with us. Our payroll is incredibly transparent and we will never hide anything from your candidates.
- And more.
Umbrella Companies are the same
All umbrella companies should be the same (well, very similar).
The only thing that should vary amongst umbrella companies is their margin and the additional extras included in their service. Every other deduction is made in accordance to HMRC legislation and therefore, if your candidates were to shop around and contact a number of compliant, UK based umbrella companies, all of them should be quoting a very similar take home amount.
Compliance is Vital
Referring your candidates to offshore payroll providers puts your agency and candidates at risk. HMRC are relentlessly tracking down and closing offshore intermediaries that have been set up to help your candidates unethically reduce their tax burden.
Did you know that HMRC can retrospectively punish your candidates for using tax avoidance schemes well into the future? This means that if your candidates use an offshore tax avoidance scheme, they could be retrospectively punished decades into the future.
Your recruitment agency must ensure that you only refer your candidates to compliant providers. The introduction of the Criminal Finances Act 2017 means that if you are found to be referring candidates to tax avoidance schemes (even accidently), you could be heavily punished.
Churchill Knight Umbrella
Churchill Knight Umbrella is the perfect PAYE umbrella company for your candidates. We are onshore and operate in full compliance with HMRC; whilst being able to offer your candidates a host of extras to ensure they receive great value. To find out more information, please call us on 01707 671645 or email agency@churchill-knight.co.uk.
If you would like to refer a candidate to us, you can do so in minutes using our online referral form.
