Your agency may offer a choice: their own payroll or an umbrella company. It's worth understanding what each option means. The difference affects your employment rights and your payslip. Since April 2026, it also affects your agency's compliance obligations.
DASA Umbrella is a dual-accredited umbrella company. We hold both FCSA and Professional Passport accreditation.
What's the difference between agency PAYE and umbrella company?
Agency PAYE means the agency runs your payroll directly. You're paid as a worker on the agency's books. An umbrella company is a separate employer that sits between you and the agency. The umbrella employs you, runs your payroll, and gives you employment rights the agency payroll may not fully provide.
The practical difference on your payslip is that agency PAYE has no umbrella margin. The umbrella route includes a margin deduction. This is typically between 75p and £2 per hour. Both routes run PAYE and deduct income tax and National Insurance.
The bigger differences show up in your employment rights, holiday pay, and portability between contracts.
How does agency PAYE work?
Under agency PAYE, the recruitment agency runs your payroll. They deduct income tax and employee's NI from your pay. You're treated as a worker for the agency. You get basic statutory entitlements, but you're not a full employee of the agency.
The agency calculates your pay from the rate agreed with the end client. They deduct their costs, add employer's NI, and pay you the remainder through PAYE. Your tax code is applied by the agency's payroll team.
Agency PAYE is simple. There's no margin charged to you separately. On a short, one-off contract, it can be the path of least resistance.
But agency PAYE has limits. Some agencies don't provide full employment rights under their worker contracts. Holiday pay entitlement exists, but how it's treated can vary. You have no 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. Your gross pay is what remains. PAYE tax and employee's NI are then deducted from that.
Because you're 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 every time you submit a timesheet. Use the umbrella pay calculator to estimate your take-home before you commit.
Read our guide to understanding umbrella companies for a full explanation.
What are the main differences?
Agency PAYE costs you nothing in margin fees. Umbrella costs a small weekly or monthly margin. In return, you get a full employment contract, statutory rights, and an independent employer who handles your payroll compliantly. For most contractors on longer engagements, umbrella is the stronger option.
Here's a 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 contractor rights guide for detail. That matters on rolling contracts or when moving between clients.
What does April 2026 JSL change about this choice?
From April 2026, Joint and Several Liability rules make agencies directly liable for unpaid PAYE across their supply chain. That includes their own in-house payroll. Agencies running their own PAYE carry that liability entirely. Many are now moving to umbrella-only arrangements with accredited providers to reduce their exposure.
JSL means agencies share liability for their umbrella's unpaid PAYE. But using an accredited umbrella lets them demonstrate due diligence. That protects them if something goes wrong.
Agencies running their own payroll get no such protection. Their PAYE liability is total and direct. That's one reason some agencies are narrowing their approved supplier lists to accredited umbrellas only.
See our joint and several liability guide for agencies for more detail.
The practical impact for contractors: agency PAYE may become less available. Some agencies are already moving to umbrella-only arrangements. Choosing a compliant umbrella early puts you ahead of that shift.
If your agency moves to umbrella-only, they'll give you a list of approved providers. Check whether those providers hold FCSA or Professional Passport accreditation. If none of them do, ask why. Accreditation exists to protect you as much as the agency.
DASA holds FCSA and Professional Passport 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're on a long engagement, umbrella is the better choice. You get full employment rights, a portable employment record, and a compliant payslip. On a short contract with a properly run agency payroll, agency PAYE is simpler. But check your employment rights either way.
Ask the agency which accreditation their umbrella holds. Look for FCSA, Professional Passport, or both. An umbrella with neither has not been independently audited. That's a risk worth avoiding.
Some contractors assume all PAYE arrangements are equally safe because PAYE is PAYE. That's not accurate. What matters is whether the company running your payroll is compliant, audited, and accountable. An accredited umbrella with a clear contract is a different proposition. An agency running payroll as an afterthought is not the same thing.
If you're 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 our guide to what makes an umbrella company compliant before you sign.
Agencies can find out more about working with DASA on our recruiters page.
FAQ
What is the difference between agency PAYE and umbrella company?
Agency PAYE means the agency runs 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 mean agencies are directly liable for their own payroll PAYE. Many 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 propose 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.
