Contractor payday: What’s next?

Umbrella companies have taken a bit of a battering in recent years; the restrictions placed on claiming travel and subsistence expenses and changes to salary sacrifice rules have meant that, for the vast majority of umbrella company contractors, the umbrella route is no longer a way of reducing ones tax liabilities. Instead the umbrella solution is simply a mechanism through which to get paid; it’s effectively just an outsourced PAYE function.

At the same time that the umbrella model has been attacked in this way, we’ve also seen a general increase in the number of contractors going down the umbrella route (this is especially true in the public sector where the IR35 changes have led to a large-scale migration of contractors away from trading via their own PSCs).

We argue that in the vast majority of cases the traditional umbrella solution is now out of step with the current climate in terms of the way it is presented and administered. The traditional umbrella model is now simply applying PAYE to earnings, but it does so in a confusing manner because of the way in which the worker is paid via an uplifted rate of pay rather than a PAYE rate, which means that their payslips become much more complicated because of the inclusion of employer liabilities and umbrella margins. Such complex payslips tend to raise lots of questions and frustrate many workers.

Our argument is that the current climate would favour an umbrella solution that is presented as a simple PAYE service to those workers that are using it. There should be no more complicated uplifted rates of pay and no more employer costs or umbrella margins appearing on umbrella company payslips.

If the workers are just getting PAYE, let’s not dress it up as anything else; by over-complicating the situation we only make more work for ourselves through having to explain things that should already be obvious (if we’re constantly having to take employees through their payslips so that they understand what’s going on, to my mind that’s a pretty good indication that things might be more complicated than they should be!)…and just as importantly, we confuse and frustrate our contractor employees.

If you’re a recruitment agency that has workers operating via your own PAYE, but like the idea of being able to outsource the employment responsibility without disrupting your contract workers, or you’re an agency that makes use of the traditional umbrella model but can also see value in having an umbrella solution that is presented to your workers in a much more simple and understandable format, please complete the following and we’ll be in touch to explain in a little more detail.

Posted by Wesley Scott on August 25th, 2017

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