Your agency may offer two routes: its own payroll or an umbrella company. It helps to know what each one means. The choice affects your employment rights and your payslip. Since April 2026, it also affects your agency’s compliance duties.
DASA is a trusted umbrella company accredited by FCSA, Professional Passport and SafeRec.
What’s the difference between agency PAYE and umbrella company?
Agency PAYE means the agency runs your payroll directly. You are paid as a worker on the agency’s books. An umbrella company is a separate employer between you and the agency. The umbrella employs you, runs your payroll, and gives you statutory employment rights the agency payroll may not fully provide.
On your payslip, the main difference is the umbrella margin. Agency PAYE has none. Umbrella payroll usually includes a margin deduction, often £15 to £25 a week. Both options use PAYE and deduct income tax and National Insurance.
The bigger differences are in employment rights, holiday pay and whether you can move between contracts more easily.
How does agency PAYE work?
Under agency PAYE, the recruitment agency runs your payroll. It deducts income tax and employee’s NI from your pay. You are treated as a worker for the agency. You get basic statutory entitlements, but you are not a full employee of the agency.
The agency calculates your pay from the rate agreed with the end client. It deducts its costs, adds employer’s NI, and pays you the rest through PAYE. The agency’s payroll team applies your tax code.
Agency PAYE is straightforward. No separate margin is charged. For a short, one-off contract, it can be the easiest option.
But agency PAYE has limits. Some agencies do not offer full employment rights under their worker contracts. Holiday pay exists, but the way it is handled can vary. You do not have an independent employer looking out for your interests.
How does umbrella company payroll work?
Under umbrella payroll, you become an employee of the umbrella company. The agency pays the umbrella an assignment rate. The umbrella deducts its margin, employer’s NI, and the Apprenticeship Levy. What remains is your gross pay. PAYE tax and employee’s NI are then deducted from that.
Because you are a full employee of the umbrella, you get statutory employment rights. That includes sick pay eligibility, holiday entitlement, pension auto-enrolment, and maternity or paternity rights.
The umbrella processes your pay each time you submit a timesheet. Use the umbrella tax calculator to estimate your take-home before you commit.
Read how umbrella payroll works for a full explanation.
What are the main differences?
Agency PAYE does not charge you a separate margin. Umbrella payroll usually does. In return, you get a full employment contract, statutory rights, and an independent employer handling your payroll.
Direct comparison:
| Agency PAYE | Umbrella | |
|---|---|---|
| Payroll operator | The agency | Separate umbrella company |
| Employment contract | Worker agreement | Full employment contract |
| Margin fee | None | Yes, fixed per week or month |
| Holiday pay | Statutory, varies by agency | Statutory, shown on payslip |
| Sick pay eligibility | Varies | Yes, statutory minimum |
| Pension auto-enrolment | Varies | Yes |
| Portable across agencies | No | Yes, if same umbrella |
Full umbrella employee rights are stronger than most agency worker arrangements. Read our umbrella company employee rights guide for detail. That matters on rolling contracts or when you move between clients.
What does April 2026 JSL change about this choice?
From April 2026, Joint and Several Liability rules make agencies liable for an umbrella’s unpaid PAYE. Agencies running their own PAYE are the employer, so that tax is already their duty. Some are now moving to umbrella-only arrangements with accredited providers to reduce exposure.
JSL means agencies share liability for an umbrella’s unpaid PAYE. Using an accredited umbrella helps them show due diligence, which matters if something goes wrong.
Agencies running their own payroll are the employer. That PAYE is already their own duty. JSL risk is one reason some agencies are narrowing their approved supplier lists to accredited umbrellas only.
See our guide to joint and several liability for agencies for more detail.
For contractors, the practical impact is simple: agency PAYE may become harder to find. Some agencies are already moving to umbrella-only arrangements. Choosing a compliant umbrella early puts you ahead of that change.
If your agency moves to umbrella-only, they will give you a list of approved providers. Check whether those providers hold FCSA, Professional Passport or SafeRec accreditation. If none do, ask why. Accreditation exists to protect you as much as the agency.
DASA holds triple accreditation. Agencies using DASA can point to independent payroll and compliance audits.
Which option is right for you?
If your agency offers both and you are on a long engagement, umbrella is usually the better choice. You get full employment rights, a portable employment record, and a compliant payslip. On a short contract with a well-run agency payroll, agency PAYE is simpler. Check your employment rights either way.
Ask the agency which accreditation their umbrella holds. Look for FCSA, Professional Passport or SafeRec. An umbrella with none of them has no accreditation you can check. That is a risk worth avoiding.
Some contractors assume all PAYE arrangements are equally safe because PAYE is PAYE. That is not accurate. What matters is whether the company running your payroll is compliant, audited, and accountable. An accredited umbrella with a clear contract is not the same as an agency running payroll as an afterthought.
If you are choosing an umbrella, check that the contract names a fixed margin. Confirm it covers RTI compliance and sets out your holiday pay terms clearly. See the umbrella company compliance requirements before you sign.
Agencies can find out more about working with DASA on our agency payroll solution.
FAQs
What is the difference between agency PAYE and umbrella company?
Agency PAYE means the agency handles your payroll. An umbrella company is a separate employer that pays you through PAYE, gives you a full employment contract, and provides statutory employment rights.
Is agency PAYE cheaper than umbrella?
Agency PAYE has no margin fee. Umbrella includes a small margin. But umbrella gives you full employment rights, holiday pay visibility, and portable employment status.
How does JSL affect agency PAYE in 2026?
From April 2026, Joint and Several Liability rules make agencies liable for an umbrella’s unpaid PAYE. Agencies running their own payroll are already the employer for that PAYE. Some agencies are moving to umbrella-only arrangements with accredited providers to manage this risk.
Can I switch from agency PAYE to umbrella?
Yes. Ask your agency whether they work with an approved umbrella. You can also suggest a compliant umbrella you've chosen yourself.
Does umbrella payroll give me better employment rights than agency PAYE?
Yes. As a full umbrella employee, you get sick pay eligibility, pension auto-enrolment, holiday entitlement, and maternity or paternity rights. Agency worker status varies.
