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Direct pay (PAYE) versus payment through umbrella companies

We are frequently asked why we do not offer our nurses and midwives the opportunity to be paid via an umbrella company or allow a third party to manage payments on behalf of our workers. Simply, we do not believe these schemes always benefit our workers and we are concerned about the varying interpretations of the new IR35 legislation. As this is a complex area, we thought we would publish our thoughts to the three most common misconceptions on this subject:

  1. “I can keep up to 90% of my hourly pay rate”

    An umbrella company who promises you can take home up to 90% of your salary may be operating a contractor loan scheme, or some other model which 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 is found not to be compliant with the rules. To be compliant, 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 outweighed by the fees they charge and so may not be a net benefit.

    Our advice:
    • Check what fees you are paying through your umbrella 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. Take a look at the example below which compares what an RN would take home at Thornbury Nursing if they were paid directly via Thornbury vs a typical Umbrella company

    • If it seems too good to be true, it is likely to be challenged. There is advice on HMRC websites here.

  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 on a regular basis following submission of a timesheet and so there is no delay in payment. At Thornbury you will be paid directly by us, up to four times a week without the need for a third party to be involved. It’s simple; submit your timesheet and we’ll get that processed straight away for you.

    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 guidelines here.

  3. “I’ll get paid more per hour if I am working through an umbrella company”

    If you are working through a compliant umbrella company and they are deducting your Tax and NI appropriately, by the time you have paid the fees umbrella companies charge 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 against your taxable earnings. Often, an umbrella company will say they have a ‘special expenses dispensations from HMRC’ and they will process these in your payroll and offset these against taxable pay. In 2016, changes to travel and subsistence expense claims came into effect. It meant that tax relief for work-to-home travel expenses would no longer be available to umbrella workers if someone is working under supervision, which is the case for most nurses and midwives. If you are receiving expenses relief and you 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 legitimately being processed
    • Check what expenses your agency pay you to travel to a shift or if a shift is cancelled at short notice.

We know this is a complicated area and we hope this has been useful for you. If you are genuinely concerned about your current arrangements with an umbrella company we urge you to move over 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.

If you want to register with an agency who pays what they say and is always straight with their workers when it comes to pay and associated fees then we’d love to hear from you. Give us a call on 0345 120 5252 or email us at


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