Contractors' Questions: How to keep contracting if agency work is on hold?

Contractor’s Question: Work via my agency is irritatingly on hold. So far, as a PSC, I pay employer’s NI and employee’s NI for travel/ accommodation as often I work over 150 miles away. The agency is happy with me paying B&B prices per week, but they won’t commit to me taking out a lease or a short-term let, which would provide me with a big saving. 

Also annoyingly, their contracts are increasingly short -- below 13 weeks. What’s the best way for me to continue contracting? I approached an umbrella company, but its website calculation produced a higher figure than what they said by phone. They seem to be taking the employer’s NI from my margin, plus a charge for their service. Is that normal practice?

Expert’s Answer: You have stated that work via your current recruitment agency is “on hold”. It is possible that this pause is due to your agency not being able to offer you a new assignment or an extension of your current assignment.

I always advise any contractor to form relationships with more than one recruitment agency in order to increase their chances of securing new assignments. You mention also that your agency is unhappy for you to take out a lease or short-term let. I assume from this that it is your agency or client who are covering the costs associated with your accommodation. The reason why they are unwilling to commit to a lease or short-term let is most likely because these types of commitments would be incompatible with the very short notice periods that are usually in place on temporary assignments, such as those for 13 weeks. It means your client/agency is unwilling to expose themselves to a long-term financial commitment if it’s possible that the assignment could be terminated by either party at short notice.

Unfortunately, there are not enough details in your question to thoroughly assess your situation with respect to which payment or working option would be the most appropriate for you. It seems that you have experience of both working as an umbrella worker and of trading via your own limited company. If you have a basic understanding of how each of these models operates, much of the answer to which is suited to you would then likely be down to your own personal preference.

In terms of you receiving professional advice on this and future matters, important points to take into consideration are things such as your industry sector (public or private), your IR35 status; your pay rate, whether you have longer-terms plans within the contracting market, and your attitude to directorial responsibility.

As to your final query about umbrella company payments, they will retain a margin from the total contract income to cover the provision of their service to you. They will also deduct from the total contract income employer’s NI liabilities and any holiday pay amounts. The remainder of the contract income is then treated as your gross rate out of which your income tax and employees NI liabilities are paid. It’s important to remember that when you work via an umbrella company or via your own limited company, the rate of pay that you are on is an ‘all inclusive’ rate of pay, designed to cover all potential tax liabilities that exist in relation to your placement. This ‘all inclusive’ rate of pay is a sum greater than your gross rate. It is for this reason that the rate of pay that you’re on when using an umbrella company or ‘Ltd’ company is higher than the rate offered if you were to take the role under the agencies own PAYE, where employer costs would be dealt with independently or your contracted rate.

The expert was Marc Scott, a director of umbrella company Liberty Bishop.

Thursday 23rd February 2017