Who Pays Agency Workers and How Is It Calculated?

26 March 2021

Up until now when you need an agency worker it probably hadn’t occurred to you to ask the supplying agency how the worker is being paid, that generally would be between the agency and the worker.

Now that there have been specific changes to IR35 legislation, there are now obligations on you as the end hirer to specify how the worker can be paid, either PAYE or Limited Company.

The purpose of this blog is not to discuss the IR35 legislation in any detail, if you want more information you can find it HERE, it is to highlight the deductions that need to be made from the agency charge rate in a PAYE vs LTD company scenario.

In the first chart the agency will agree an amount with the worker and then add on all the costs shown, the agency is then responsible for paying the worker the net amount which is still subject to tax and national insurance.

In the second chart the agency will still agree an amount with the worker but the gross amount will be paid to the LTD company (or PSC) which is then responsible for all deductions.

We have put together the following illustration graphic to show how the pay and charge rate is made up.

Temporary Workout Make Up (2) Temporary Workout Make Up (1)

For the purposes of simplicity, if an agency is supplying a worker via an umbrella company they will charge as per LTD company graphic but the umbrella company will make the deductions as per the PAYE model.