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warning about using an umbrella company when working for an agency

Discussion in 'Supply teaching' started by terrydactil, May 15, 2010.

  1. If your agency gives you the option of using an umbrella company, RENEGOTIATE YOUR HOURLY / DAILY RATE before you accept. This is because the agency wants you to use an umbrella company because it can and will stop paying your employer's national insurance contributions, and you'll have to pay them yourself via the umbrella company. If you don't renegotiate, the agency will simply keep that amount.

    These agencies are very greedy. They charge the school I work for £170 per day and pay me £105. Out of the huge £65 profit they make every day for nothing more than a couple of phone calls, they are supposed to pay my employer's national insurance, but they've wriggled out of it.
  2. Pennyforyourthoughts

    Pennyforyourthoughts Occasional commenter

    Why is it happening? why cannot they do their own PAYE anymore? Where in the country is this happening and to what agencies.... we need to know as my agency has just been taken over and I have signed another contract......... hopefully its not this practise in disguise??????
    Surely if they are off loading the PAYE side of things to an umbrella agency are they still able to say they are your employers and legally able to offer the CRB they have done for you legitimately for us to work in schools?

  3. It is happening because if you use an umbrella company, you are either an employee/contractor of the umbrella company and sign an employment contract with the umbrella company, or are your own limited company, at which time the umbrella company starts doing your PAYE for you, which includes paying your employer's NI, but it'll take that amount out of the pay you receive i.e. you pay your employer's NI yourself.
    All the agency does is hand your daily rate to the umbrella company to process, but the agency is no longer liable for your employer's NI, as you are no longer employed by the agency. It keeps that amount instead.
  4. Thank you for highlighting this issue. I get paid through umbrella companies with 2 of my agencies and I'm not happy that they charge me £6 daily fee (which isn't too much out of teaching rate, but I often have to take TA work, which is only £50 a day).
    If I'm then also paying my employers NI contributions that seems unfair.
    I work for so many agencies and organisations that I'm really confused about the whole tax / NI thing anyway. I have no idea whether I've paid enough tax / NI contributions this last year or how to find out. I'm still waiting for some of my P60s to arrive, then I plan to phone the tax office to see if they can make any sense of it.
    I also noticed that one of my umbrella companies listed part of my wages this week as a bonus - I'm not sure why they did this but I find it a bit worrying.
    The agency which gives me the most work will only pay me through an umbrella company (I already asked if they could pay me directly), which is annoying cos I don't think it saves me any money, and they're pretty dodgy (have taken an admin fee of £10 a day instead of £6 a few times), which is especially bad when I've only done TA or nursery nurse work. They've refunded the money after I've chased them up but it doesn't make me trust them.
  5. Pennyforyourthoughts

    Pennyforyourthoughts Occasional commenter

    Still confused .......................... As I understand it.....
    ..... you are phoned for work by one company (with a different name) ............. BUT your payslip comes through under another company (with a different name)
    Is this legal.....
    WHY do they do it this way?????
  6. Totally in agreement about this. Did you also realise that as a supply teacher working through an umbrella scheme if the revenue decides there is an underpayment of Paye and NI contributions, we are personally liable. Strangely enough this isn't mentioned in the inevitable Consultant sales patter.
  7. Pennyforyourthoughts

    Pennyforyourthoughts Occasional commenter

    Surely this cannot be so ................. the Tax office has powers to investigate the company and address their PAYE records .... it shoud then be up to the Company to adjust the underpayment with your PAYE
    If you no longer work for the company then I can see that the Tax Office might need to put a demand into you direct..... although this is often sorted out with your new employer through their PAYE and the deductions made that way.
    Sounds like the same as anywhere you work.
  8. gud4age

    gud4age New commenter

    Well I get forty five quid a week more this way so needs be !
  9. Actually you will be better off working under an umbrella company because you are classed as a director of the company and paid a small wage - sufficient to cover some NI contribution to preserve your benefits - plus a dividend (which is a share of the profits of the company) the dividend does not attract NI contributions, therefore saving you 11%. You are also allowed to claim travel expenses and subsistence.
  10. Pennyforyourthoughts

    Pennyforyourthoughts Occasional commenter

    Can you name some of these umbrella companies for us so we will know who they are?
  11. This is illegal, exploitative and criminal!

    The agency concerned MUST be reported to the police and the relevant authority.
    ALL employers MUST pay national insurance contributions and tax otherwise a CRIMINAL offence is being committed.
    Do NOT BE HOODWINKED BY ANY CALL CENTRE staff at the agency...
  12. You really do not know what you are talking about. It is not a criminal offence, it is not illegal what it may be classed as is tax avoidance which is completely legal it's how millionaires manage to hold on to more of their money - by using tax efficient perfectly legal methods.
    A shareholder (the supply teacher) of a limited company (the umbrella company) is entitled to a share of the profits by means of a dividend. Dividends are taxed but because they are not salary they do not attract either employer's or employees NI.
  13. satnav

    satnav New commenter

    I think these arrangements are probably beneficial for people who virtually do supply full-time and do a lot of travelling. When I was contacted the figures they gave me suggested that I'd save about £18 a week tops. But I'm guessing if I went down that route trying to sign on over the Summer would be extremely difficult so this could mean missing out on a lot of Jobseekers allowance so it doesn't really appeal to me.
  14. Good to see this coming up for discussion. There are a few myths out there about umbrella companies - which seem to have popped up on this forum. Hopefully this information is useful:
    Renegotiating your agency rate if you switch from PAYE to Umbrella
    You should certainly aim to be paid a higher rate on Umbrella than you are on PAYE. As Terrydactil says when you are on PAYE your employer (the agency) is paying Employers National Insurance (NI) contributions to HMRC for you. The NI contribution for employers is 12.8% of your salary. If you switch to Umbrella the agency will no longer be considered to be your employer and will not have to pay this 12.8% - <u>you will be paying these contributions yourself. </u>Therefore you should be getting a higher rate of pay to cover this cost. If you were on 100 per day on PAYE you would want to add this 12.8% onto your daily rate (remembering you wont see this in your paycheck as it will go to HMRC) Therefore you should be aiming to renegotiate your rate from 100 to around 112-113 per day if you make the switch to Umbrella. You may be happy to accept a 10% uplift (to say 110) if the benefits of Umbrella in your case will mean you are significantly better off anyway. My understanding is that the agency doesn't have to pay you all this NI contribution so you will probably have to negotiate for it.
    Is it worth me being paid through an Umbrella company?
    I don't believe it is a blanket solution for everyone. I would recommend the following steps to see if it is right for you.
    a) Contact your agency and ask what daily rate they will offer if you make the switch to Umbrella. Unless your new rate is going to more or less cover the cost of the N.I contributions then you might not be better off after all.
    b) If the agency is prepared to put your rate up enough to cover or almost cover this N.I contribution then ask other teachers which Umbrella providers they are with and what their experiences have been.
    c) Contact some of these providers by phone or email. If you provide them with the correct salary information and a general overview of the types of expenses you occur (travel etc) they should be able to come back to you quickly with a comparison sheet which will show what you are earning on PAYE and what you will be earning on Umbrella. If there is not much difference between the two then there is not much point in switching over. Check this comparison carefully to ensure it is showing the correct information.
    d) Remember that if you make the switch you will need to pay your chosen Umbrella company a fee for processing your timesheets each week. If you have only worked for one day that week then you may find that the cost is outweighing the benefits. Umbrella seems to work best for those working 4 or 5 days every week. If you are only working for 1 or 2 days a week you are unlikely to be better off.
    e) It seems that some agencies are pushing all of their workers to join umbrella schemes. Why wouldn't they? Less administration, less cost of running their own payroll, no N.I contributions to make, less pay queries to deal with - of course it is saving them money! This doesn't mean umbrella is a bad option - they can and do benefit some individuals greatly but you should make the assessment based on your own circumstances and not on the blanket recommendation of an agency.
    Good luck!
  15. Beware malign, profiteering and self-serving dubious companies who abuse and exploit hardworking, professionally qualified supply teachers and the schools served by them!
  16. Just following up on your post - I am a TA and new to the supply market. The agency I use pays through an umbrella company. I too see that I am paying employers NI, and an admin fee. There was nothing about this in my joining paperwork. I wasn't given a choice either. To date I am not getting a full weeks work so my measley TA wages are going to suffer.
    Can anyone suggest what the break even point is for me working a part week if they are deducting this? Is it worthwhile me continuing to work or should I just find an agency that pays direct?

  17. I honestly can't see how being paid through Umbrella could possibly be better if you are on a low TA wage and not working 5 days a week. You need to go back and work out what you would have been paid if you had gone through PAYE on your earnings since the beginning of the financial year. This shouldn't be too hard - just work out how many days you have worked since 6th April 2010 and times this by your daily rate to get your gross pay. (i.e 20 days x 60 per day is 1200 gross) If you contact HMRC they should be able to tell you what you would have received net after tax on PAYE for this gross amount and I'm sure they could help calculate your future potential tax rate and earnings based on a similar work pattern for the rest of this year on PAYE. You should also be able to contact the Umbrella provider for a breakdown of your earnings. If it seems you will be significantly better off on PAYE I would contact the agency and tell them you want to switch.
    I'm not sure if an agency can force you to be paid through Umbrella but I know there are agencies that happily give candidates the choice of PAYE or Umbrella as methods of payment. If you want to switch to PAYE and your agency won't do it then I would ditch them, contact the Umbrella company for your P45 and move to an agency that gives you the choice. <u>If you switch from Umbrella to PAYE make absolutely sure you get a P45 from your Umbrella Company to ensure you don't go onto emergency tax when you return to PAYE</u>. You would need to give the P45 to either your new employer or if you are switching to PAYE within your current agency you will need to give their internal payroll department this document to ensure you don't pay too much. Good luck.
  18. It is sad that many agences are making registration with umbrella companies a compulsary part of registering for work through them. Surely it is unlawful to insist on obligatory registration? The only real saving for any party in these schemes is the supply agency forcing it.
    To quote from HMRC - 'HMRC are concerned that many lower paid workers being paid through such schemes do not understand the arrangements and in many cases are given little choice as to whether or not they are paid through such schemes.'
  19. Some interesting points raised on this thread, especially given how many supply teachers have always praised them...
    Has anyone got experience/knowledge of the umbrella company Giant?

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