How to make contracting pay.

So, you’ve decided to take the leap into contracting. Congratulations! In a lot of ways, contracting is the future of work. More and more people are embracing the freedom and lifestyle benefits.

But there are some important differences between contracting and being employed. With the most important difference being pay.

In employment, it’s simple. You’re on full PAYE and get the usual deductions like National Insurance with statutory rights like holiday pay and, if you’re lucky, maybe a nice little benefits package. But contracting’s different. There’s more than one way to get paid.

So, what are your options?

Well funnily enough, in our latest contractor survey, most contractors weren’t given an option by their recruitment agency. They were just told how they were going to be paid. At People, we think that’s unacceptable. Because how you’re paid is important for your tax code and benefits. You should always demand a choice.

There are two main ways contractors can be paid:

Umbrella companies

The most popular way to pay contractors is through an umbrella company. There are hundreds, if not thousands of different umbrellas. Each offering their own different terms and conditions.

Plenty of umbrellas are perfectly fine. But some can be dodgy. They look like you’ll pay less tax, but it’s a scam. The government has been cracking down on these schemes and going after the recruitment agencies and contractors who use them. As a rule of thumb, if it looks too good to be true, it is.

The same goes for your pay. Getting paid through an umbrella company can look like you’re getting more, but you’re not. There are many deductions that are applied before you get your money. You’ll end up getting the same amount as if you were on PAYE, but without the benefits.

Top tip: When talking to your recruiter, always ask for the ‘Take home pay’. The amount of money you’ll actually get in your pocket.

The other thing to look out for with umbrella is the complicated payslip. They’re not as straightforward as you’re used to, so you’ll need to examine them to make sure you’re getting paid what you should.


The alternative is to go Pay As You Earn. So, just like full-time employees, you get all the usual deductions and statutory benefits like holiday and sickness pay. It’s simple, easy and completely transparent.

Sometimes recruitment agencies run their own internal PAYE and sometimes they’ll use a company like People.

The only real difference is that with People, we believe we offer a better experience and a more comprehensive benefits package. Payroll is what we do, it’s all we do, we’re specialists. We devote our time, energy and resources into creating a market leading payroll service for contractors. Whereas recruitment agencies tend to treat it as an add-on and only offer a very basic service.

So there you have it, contracting can be hugely rewarding. But there are some big differences, especially around pay.

You can download our contractor’s guide here for some helpful tips and here’s the guide to the People payroll offer. We’re always up for a chat if you’d like more advice, just give us a call.