PAYE Options for Contractors

Working with ARM, you have a number of options with regards engaging with us on a PAYE basis. This document looks to give you a brief overview of these however we encourage you to speak to the umbrella companies to fully assess their benefits.

Once you have made your decision, let us know and we will issue paperwork promptly to ensure that your on-boarding is as smooth as possible.

Your options:

  1. ARM PAYE – You will engage with us directly through our in house payroll. You will have a contract for services with us and we will administer PAYE deductions on all payments to you. We charge no additional fees for this service.
  2. Umbrella Company PSL – You will engage with one of our preferred Umbrella Company providers – these are selected by us due to their quality of service, financial stability and compliance levels. Generally you are employed directly by them and they will administer PAYE deductions on all payments to you. They also have benefit schemes that you can buy into.

These companies are:

We have put together the following FAQs to help you understand the solutions further.

If you still have any queries that are not covered by our FAQs, please email contractorsupport@arm.co.uk and we will respond as soon as possible.

Frequently Asked Questions – Direct PAYE

 

Q: Why does ARM offer a contractor payroll solution in-house?

A: To provide contractors with an alternative to an Umbrella solution where that is the contractors preferred option.

Q: Will my take home pay be less?

A: Yes. As a result of statutory costs associated with the change of engagement from a PSC Contractor to a PAYE engagement, the overall cost to the Client for each engagement will increase, and it is unlikely that the Client will be able to increase your rate to match your current take home pay
Therefore, your PAYE pay rate will be calculated based on your current PSC pay rate with the following deductions as required by law: Employers National Insurance, Apprenticeship Levy, employers’ pension contribution and accrued holiday pay. This will be your ‘gross’ rate.
In addition, ARM will be required to deduct PAYE Tax, Employee’s NI and employee pension contributions on the PAYE pay rate, giving you your net take home pay

Q: What are statutory costs?

A: Statutory costs that ARM are required to pay include Employer’s National Insurance, Apprenticeship Levy and costs associated with Working Time Regulations (holiday pay) and Pension auto-enrolment.
A high-level example of how gross pay is impacted by moving from a PSC Contractor engagement to a PAYE engagement is outlined below.



Q: How much PAYE Tax and Employee’s National Insurance will ARM deduct from my pay?

A: Under a PAYE engagement, PAYE Tax will be deducted from your pay, in line with the PAYE Tax code provided by HMRC and will be determined by your personal tax circumstances. Therefore, ARM cannot be specific about the net amount you will be paid after deductions as this will be determined by HMRC at the point of payment.

Q: Will I now be entitled to employment benefits?

A: Yes. If you change to a PAYE engagement, you will be entitled to statutory benefits. Examples of statutory benefits include paid holiday, maternity pay, statutory sick pay and pension contributions.
Please refer to this link which outlines the statutory benefits you will be entitled to as a PAYE worker: https://www.gov.uk/agency-workers-your-rights

Q: Will I be paid for holiday?

A: Yes. ARM will accrue your holiday pay at a rate of 12.07% per hour worked, i.e. 40 hours worked will result in 4.8 hours accrued holiday.
This means holiday pay will be set aside and be paid to you when you take holiday provided sufficient holiday has been accrued. You can decide how much and when to receive your holiday pay as and when you require it. You must notify us of any holiday so we know to pay out.
Your holiday year will run from when you start engaging with us as a PAYE contractor. For example, if you transition to PAYE on 8th March 2021, your holiday year will be 08th March through to 7th March the following year

Q: What pension do you offer to temporary workers and how does it work?

A: ARM use the National Employment Savings Trust - (NEST). All contract workers will automatically be enrolled with NEST in line with The Pensions Act.

Q: Can I opt out of pension

A: Yes, but this has to be done directly with NEST. If you decide that you don’t want to put money aside for your retirement just yet, you have the right to opt out. You must do this within your one month opt-out period, which starts three days after you’ve been enrolled into NEST.
Your welcome pack should arrive around this time and will include information on how to opt out and the date your opt-out period ends. You can’t opt out until you’ve been enrolled and have received your NEST ID. This opt out process is dictated by The Pensions Act.

Q: Do ARM offer a pension salary sacrifice option?

A: No. ARM will make employer contributions to your retirement pot. If you’re eligible, you’ll also get extra money from the government through tax relief.
NEST uses the relief at source method of claiming tax relief. This means that you make contributions from your pay after the deduction of tax − if you pay tax. If you’re eligible for tax relief, NEST will claim this for you from HMRC and add it to your pot. At the moment, basic rate tax relief is 20 per cent. This will be paid on the contributions you make and will go directly into your retirement pot once NEST has claimed it from the government. If we don’t have your National insurance number NEST won’t be able to claim basic rate tax relief on your behalf, so please make sure you’ve given it to us so you don’t miss out on any extra money.

Q: Will I get paid for any sick days taken?

A: You will be entitled to Statutory Sick Pay (SSP) for up to 28 weeks. To qualify for statutory sick pay (SSP) you must; 1) Have been ill for at least 4 days in a row (including non-working days). 2) Earn an average of at least £118 per week. 3) Tell us that you’re sick before the deadline set out in your contract and supply the corresponding doctor’s note. You do not accrue any holiday where you are off for sickness.

Q: Why does ARM offer a contractor payroll solution in-house?

A: To provide contractors with an alternative to an Umbrella solution where that is the contractors preferred option.

Q: Will my take home pay be less?

A: Yes.
As a result of statutory costs associated with the change of engagement from a PSC Contractor to a PAYE engagement, the overall cost to the Client for each engagement will increase, and it is unlikely that the Client will be able to increase your rate to match your current take home pay
Therefore, your PAYE pay rate will be calculated based on your current PSC pay rate with the following deductions as required by law: Employers National Insurance, Apprenticeship Levy, employers’ pension contribution and accrued holiday pay. This will be your ‘gross’ rate.
In addition, ARM will be required to deduct PAYE Tax, Employee’s NI and employee pension contributions on the PAYE pay rate, giving you your net take home pay

Q: What are statutory costs?

A: Statutory costs that ARM are required to pay include Employer’s National Insurance, Apprenticeship Levy and costs associated with Working Time Regulations (holiday pay) and Pension auto-enrolment.
A high-level example of how gross pay is impacted by moving from a PSC Contractor engagement to a PAYE engagement is outlined below.

Q: How much PAYE Tax and Employee’s National Insurance will ARM deduct from my pay?

A: Under a PAYE engagement, PAYE Tax will be deducted from your pay, in line with the PAYE Tax code provided by HMRC and will be determined by your personal tax circumstances. Therefore, ARM cannot be specific about the net amount you will be paid after deductions as this will be determined by HMRC at the point of payment.

Q: Will I now be entitled to employment benefits?

A: Yes. If you change to a PAYE engagement, you will be entitled to statutory benefits. Examples of statutory benefits include paid holiday, maternity pay, statutory sick pay and pension contributions.
Please refer to this link which outlines the statutory benefits you will be entitled to as a PAYE worker: https://www.gov.uk/agency-workers-your-rights

Q: Will I be paid for holiday?

A: Yes. ARM will accrue your holiday pay at a rate of 12.07% per hour worked, i.e. 40 hours worked will result in 4.8 hours accrued holiday.
This means holiday pay will be set aside and be paid to you when you take holiday provided sufficient holiday has been accrued. You can decide how much and when to receive your holiday pay as and when you require it. You must notify us of any holiday so we know to pay out.
Your holiday year will run from when you start engaging with us as a PAYE contractor. For example, if you transition to PAYE on 8th March 2021, your holiday year will be 08th March through to 7th March the following year

Q: What pension do you offer to temporary workers and how does it work?

A: ARM use the National Employment Savings Trust - (NEST). All contract workers will automatically be enrolled with NEST in line with The Pensions Act.

Q: Can I opt out of pension

A: Yes, but this has to be done directly with NEST. If you decide that you don’t want to put money aside for your retirement just yet, you have the right to opt out. You must do this within your one month opt-out period, which starts three days after you’ve been enrolled into NEST.
Your welcome pack should arrive around this time and will include information on how to opt out and the date your opt-out period ends. You can’t opt out until you’ve been enrolled and have received your NEST ID. This opt out process is dictated by The Pensions Act.

Q: Do ARM offer a pension salary sacrifice option?

A: No. ARM will make employer contributions to your retirement pot. If you’re eligible, you’ll also get extra money from the government through tax relief.
NEST uses the relief at source method of claiming tax relief. This means that you make contributions from your pay after the deduction of tax − if you pay tax. If you’re eligible for tax relief, NEST will claim this for you from HMRC and add it to your pot. At the moment, basic rate tax relief is 20 per cent. This will be paid on the contributions you make and will go directly into your retirement pot once NEST has claimed it from the government. If we don’t have your National insurance number NEST won’t be able to claim basic rate tax relief on your behalf, so please make sure you’ve given it to us so you don’t miss out on any extra money.

Q: Will I get paid for any sick days taken?

A: You will be entitled to Statutory Sick Pay (SSP) for up to 28 weeks. To qualify for statutory sick pay (SSP) you must; 1) Have been ill for at least 4 days in a row (including non-working days). 2) Earn an average of at least £118 per week. 3) Tell us that you’re sick before the deadline set out in your contract and supply the corresponding doctor’s note. You do not accrue any holiday where you are off for sickness.

Frequently Asked Questions – Umbrella Preferred Supplier List (PSL)

Q: Why have you put a PSL in place?

A: There are many hundreds of companies offering umbrella solutions, some of which may not be sufficiently financially resilient, compliant or offer the best service. Although a PSL is not a guarantee, we significantly reduce the risks to our contractors, clients and ourselves by undertaking a rigorous selection, and ongoing monitoring, process. Each company on the PSL is, as a minimum, a member of the Freelancer & Contractor Services Association (FCSA) (www.fcsa.org.uk). Part of this process entails their umbrella solution as well as their financial standing being externally reviewed with the results of the former shared with HMRC. We also conduct our own stringent due diligence process.

Q: What if I want to work with an umbrella company who is not on the PSL?

A: We will ask you to change umbrella companies to one of those on our PSL as it is critical that we have undertaken full due diligence on our supply chain.

Q: Can my current umbrella company be put on your PSL?

A: Only companies which are, as a minimum, member FCSA accredited and can also pass our stringent due diligence requirements will be considered for inclusion on the PSL, and then only when we come to review the PSL. We undertake annual reviews of our PSL and a full supply chain review of PSL is undertaken on a tri-annual basis or as market conditions dictate.

Q: Why are companies on the PSL not able to minimize my tax contributions?

A: Take-home pay should be the same regardless of the umbrella company you use as it is HMRC that dictates deductions for tax and national insurance and what expenses can be claimed, not the umbrella company. All compliant umbrella companies should be able to offer the same approximate take-home pay. Any umbrella solution offering substantially higher take home pay opens you, the client and ourselves to greater risk.

Q: I have spoken to another company who charges less than the umbrella companies on your PSL – why is this?.

A: Our market research shows that the fees charged by the PSL are competitive and in-line with the market. The PSL offers contractors excellent customer service, additional benefits packages and guaranteed service levels which must be adhered to. It may be that some companies advertising much lower fees operate a non-compliant or higher risk solution and/or provide poorer services to contractors.

Q: What if I receive a bad service from one of your preferred suppliers?

A: We take the service provided by our preferred suppliers seriously and if you feel you have received a poor service and the issue has not been resolved please raise this with either the Contractor Support Team or Business Support Team so we can investigate and resolve the matter for you.

Q: Alternatively, does ARM offer an in-house PAYE solution?

A: Yes ARM provide a direct PAYE solution if you would prefer this method.

Q: Will I be paid for holiday?

A: Yes however you have the option to be paid your holiday in your working rate meaning that you do not need to take the leave to get the financial benefit. This does however mean that when you are on holiday/not working you will not be paid holiday pay.

Q: Do I get a pension contribution paid?

A: Yes you would need to speak to each Umbrella Company to get the full details of their pension scheme.

Q: What other benefits do I get?

A: Some umbrella companies operate paid for benefit schemes – please speak to the umbrella to get further details.

If you want to contract with us through an umbrella company, you must use one of the umbrella companies on our Preferred Supplier List. It is up to you to decide whether you want to use an umbrella company. We are not, by providing the details of the companies on the preferred supplier list, suggesting that you should or should not use an umbrella company and we are not endorsing the services of any particular umbrella company on the list. If you are considering using an umbrella company, you should obtain independent advice. To the extent permitted by law, we will not be liable whether in contract, tort (including negligence), breach of statutory duty, misrepresentation or otherwise for any direct, indirect, consequential or special loss or damage you suffer or incur as a result of your use of a particular umbrella company.