Recruitment agencies that provide temporary or contract placements that fall inside of IR35 often use an external provider such as an umbrella company to process the deductions and payments to their candidates. This will often remove the administrative burden on the recruitment agency and ensure the candidate is paid compliantly. However, there are advantages of running an internal PAYE scheme for your recruitment agency, some of which are shown below:
IMPROVED CASH-FLOW
The first advantage of running an internal PAYE scheme for your recruitment agency is that when processing PAYE candidates cash flow improves. You’ll be holding more funds such as VAT, holiday pay, PAYE deductions and pension contributions that will all be due after the candidate has been paid. This can mean that if your agency is using invoice finance, there could be a reduction in the amount required to be borrowed and therefore reduce the cost of these facilities (or in some cases eliminate the need for the funding facility completely).
BETTER CONTROL OVER CANDIDATE PAYMENTS
As your candidates are paid directly from the bank account instead of via a third party such as an umbrella company, your agency can directly prove that the candidate has been paid. This means that if a candidate needs to be paid urgently and outside of an umbrella company’s timetable this can easily be done.
ULTIMATE PROOF THAT THE AGENCY IS COMPLYING WITH IR35
There can be uneasiness from clients who do not fully understand IR35 as to whether your agency is dealing with this or will comply with the legislation. However, if your agency is making the candidate PAYE deductions correctly without a third party involved this proves instantly to your client that candidates are being paid inside of IR35 correctly. This allows you to provide direct proof to the client of compliance under the legislation instead of conducting external audits of each umbrella company used.
MORE BUY-IN FROM THE CANDIDATES
Eliminating the need for an umbrella company and paying the candidate directly takes a part out of the contract chain and shows more loyalty to the candidate. This has been especially prevalent during COVID when many umbrella companies could not provide a furlough scheme to candidates, but agencies processing internal PAYE payroll themselves could provide this. This meant that recruitment agencies continued to retain candidates on their books who could have been lost if they were still handled via the umbrella company model.
ARE YOU READY TO IMPLEMENT AN INTERNAL PAYE SCHEME FOR YOUR RECRUITMENT AGENCY?
MAYACHI Ltd has seen first-hand the advantages of an agency processing most or all their candidates under their own PAYE scheme with the biggest being the improvement to cash-flow as the largest benefit. Whilst using reputable umbrella companies can reduce the administrative burden on an agency and pay candidates compliantly, this should be a consideration that a recruitment agency looks to implement if it is right for them.
