ePayMe National Account Director Paul Johnston explains the reasons behind the noticeable increase of outsourced payroll by education agencies.
Since the start of COVID pandemic we have seen a substantial increase in education agencies that are outsourcing to umbrella services like ourselves to manage their internal payroll (PAYE). Paul outlines the many pros for agency workers when acquiring umbrella services.
Since the termination of expenses back in 2016, many workers felt that due to the fact that they were unable to claim expenses that there was no benefit using umbrella services. However, utilising a legitimate provider can actually help increase a worker’s NET income. Particularly so for those workers who operate through more than one agency.
The Basic Rate Tax Snowball Effect
By workers opting to go through the agency as PAYE, workers are agreeing to work a full 5-day week and a total of 39 weeks a year through that one agency. This is great news for the agency, but the reality is a different picture as we have seen with the impact of COVID on unemployment and furlough. Should workers assignment not fulfil a full week or term and workers need to look elsewhere, receiving PAYE from multiple agencies is going to have an adverse effect on workers’ tax. Workers will ultimately pay a Basic Rate tax for each new employer as opposed to receiving their tax code allowance.
This snowball effect results in 20% being deducted each time from multiple agencies. In turn, this has serious repercussions on the workers NET pay. The advantage of using a payroll provider (legitimate umbrella company) are the overarching agreements that allow workers tax codes to be spread across all the agencies, resulting in a better return on workers’ pay from the Gross amount.
Cost Of Deductions
Besides the benefit of better NET pay for the worker, deductions are paid for by the worker. When salaries or wages are paid through a payroll provider, the worker’s salary is ‘uplifted’. This process takes into consideration the employers NI (National Insurance), pension, holiday pay and apprenticeship levy. All these deductions paid via PAYE with the agency will be at a cost to them. By putting workers through a provider, those costs are moved to the worker.
The agency ‘uplift’ workers rate of pay to compensate for these deductions so in real terms they are covering these costs for workers. This also applies to the margin that is charged each week by the Umbrella provider.
Varying Assignments
From a legal and compliance perspective, workers must be offered alternative solutions on payment methods. PAYE is a widely used and accepted method of payment. The broad perception is that unlike umbrella payroll services, PAYE is easily understood. The challenge, however, is that each worker has different criteria and assignments, so the outcome is not always the same. By managing payroll through a provider, agencies have peace of mind that their PAYE is legally compliant and updated, roving workers tax are accurate and receive better return on pay and that agencies that more time to do what is important… placing workers.
If you are considering an umbrella company to manage payroll, be sure to carry out your due diligence. There are many active fraudulent mini umbrella companies operating. Be sure you are in the right hands.
Why consider ePayMe?
As a fully compliant, multi solution outsource payroll provider, ePayMe appears on the preferred supplier list for hundreds of agencies throughout the UK. We are the only outsourced payroll providers to hold a Chartered Institute of Payroll Professionals (CIPP) accreditation and the industry wide Professional Passport stamp of approval. CIPP (PAS) is the only voluntary accreditation on the market to be developed in partnership with HMRC, so you know you are in safe hands when it comes to Customer Service and Payroll Compliance.
If you are considering moving your payroll to a provider and want to learn more about our bespoke services, call us on +44 (0)1252863700 or drop us an email on info@epayme.co.uk. We are here to help.