If you’re a contractor working via a recruitment agency, you may receive your pay through either an umbrella company or the agency’s own PAYE payroll. While both routes result in a payslip and tax deductions under the UK PAYE system, the practical differences can impact your net pay, employment history, administration burden and benefits. In this guide we compare the two payslip models — helping you see how they work and what it means for you.
If you’re new to umbrella employment, check out our guide to choosing a compliant umbrella company.
What is an agency PAYE payslip?
When you are paid via an agency PAYE model:
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The recruitment agency (or the agency’s payroll arm) acts as your employer for that assignment.
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You receive a payslip showing your gross pay, income tax and National Insurance deductions, pension contributions (if applicable) and net pay.
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There is no separate “service margin” charged to you by a third-party provider — the agency handles payroll directly.
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Each assignment may be treated as a separate employment run, meaning your employer-of-record changes with each contract.
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This route is straight-forward and may suit contractors who prefer minimal setup and clear payroll.
Key features of agency PAYE payslips:
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Transparent and familiar structure.
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Standard PAYE deductions only.
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Simpler administration.
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Possibly less continuity of employment across assignments.
What is an umbrella company payslip?
When you are paid via an umbrella company model:
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You become an employee of the umbrella company (which takes payments from the agency or end-client, then pays you).
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The umbrella company deducts its margin/fee and employment costs (employer NI, apprenticeship levy, holiday pay accruals) before determining your gross pay.
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Then your personal deductions are applied (income tax, employee NI, pension contributions) and you receive net pay.
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You remain continuously employed by the same umbrella provider across different assignments, even if you move between agencies or clients.
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The payslip may include additional lines (e.g., umbrella margin, employer NI contribution, holiday accrual) beyond the standard agency PAYE layout.
Key features of umbrella company payslips:
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More detailed breakdown of employer-side costs and margin.
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Continuous employment record (beneficial for mortgages, credit).
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Additional services and support often included (insurances, payroll handling).
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Some cost (hidden in the margin) compared to standard agency PAYE.
Side-by-side comparison
| Feature | Agency PAYE payslip | Umbrella company payslip |
|---|---|---|
| Employer on record | Agency | Umbrella company |
| Deduction structure | Standard employee tax / NI | Employer costs + margin + employee tax/NI |
| Service fee | None (or included in agency cost) | Explicit margin or hidden within rate |
| Employment continuity | Separate per assignment | Same employer across assignments |
| Payslip complexity | Simple layout | More itemised with extra lines |
| Take-home implication | Straightforward net pay | Net pay may depend on assignment rate vs margin & costs |
Why these differences matter to you
Take-home pay and costs
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With agency PAYE you avoid paying a separate margin for payroll services, but you may miss continuity benefits.
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With an umbrella you’re likely paying for additional services and support (via margin) but you gain continuity and less personal admin.
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Always compare your net pay under both models rather than only looking at gross or assignment rates.
Employment history and benefits
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Umbrella employment gives you a single employer record — helpful for mortgages, loans, and credit checks.
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Agency PAYE may treat each contract as a separate employer run, which can complicate your employment history.
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Both models provide statutory employment rights (holiday pay, sick pay, maternity/paternity) when set up correctly.
Administration and flexibility
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Agency PAYE usually means you just submit your timesheet and get paid — minimal admin.
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Umbrella removes more of the administrative burden (they handle payroll, compliance), which benefits contractors who move assignments frequently.
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Be sure to check any contractual terms with the umbrella (e.g., notice period, fees, holiday accrual).
Tax and compliance implications
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Both routes pay tax via PAYE, so you’re covered from a tax-deduction perspective.
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With umbrella companies, transparency is critical: ensure the margin, employer costs and employee deductions are clearly shown on the payslip.
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If a payslip or arrangement looks strange (loans, hidden fees, vague descriptions) this may indicate non-compliance. See our article with government guidance on verifying umbrella payslips for more detail.
How to decide which is right for you
Consider the following:
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Net pay comparison: Request clear, comparable payslip examples or calculators for both routes.
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Hidden costs: With an umbrella, ask specifically about the margin, employer NI, levy and any deductions for benefits.
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Assignment pattern: If you’ll work across multiple short contracts via different agencies, continuity via an umbrella may be beneficial.
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Non-pay aspects: Do you value insurance, pension options, HR support? These may tip the balance.
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Payslip transparency: Check that headings are clear, employer name is correct, year-to-date totals are present, and any margin/fee is identified.
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Contractual obligations: With an umbrella, review the employment contract terms (notice, assignment transitions, liability between jobs).
Not sure which setup will suit your working style? You might find our 10 tips before joining an umbrella company guide useful — it covers everything from payslip checks to understanding umbrella margins.
Payslip checklist for contractors
When you receive a payslip, make sure it includes:
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Employer name (agency or umbrella) and your employee number.
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Pay period and pay date.
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Gross pay figure.
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All deductions clearly listed (income tax, employee NI, pension, umbrella margin if used).
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Net pay (what you actually receive).
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Year-to-date totals (gross, deductions, net).
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For umbrella layout: margin/service fee line, employer NI/levy line, holiday pay accrual line if applicable.
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Clear indication of assignment rate (if relevant) or explanation of how gross pay was derived.
Summary
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Agency PAYE payslips offer simplicity and usually no extra service margin, but less employment continuity.
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Umbrella company payslips involve more detailed structure, an additional margin cost, but give you continuous employment and extra support.
Which model is better depends on your working pattern, priorities (continuity vs simplicity), and the specific numbers. Make sure you compare net pay in each scenario, check the payslip layout, and understand all terms before you commit.
If you’re considering using an umbrella, take a look at our Top 10 umbrella companies — a regularly updated list of trusted providers, reviewed for compliance, transparency, and service quality.
