Knowledge is Power

Why Do Recruitment Agencies Use Outsourced Payroll Services?

There are several payroll services that can be outsourced. At Ship Shape, we provide PEO, Bureau, CIS, and Umbrella services. But what is the difference between them all and how do they support agencies and contractors?

The following questions aren’t just for agencies, they are for curious contractors too who might not understand why they are employed by an agency but get pay slips from a different firm.

Payroll can be confusing, and there are several different solutions offered by outsourced payroll companies which might appear difficult to unravel.

We at Ship Shape want to ensure that our agencies and contractors are fully informed, while providing the highest level of service to everyone. That’s why we have produced this handy guide on the payroll services that can be outsourced, for complete transparency and guidance on how we support our people.

Professional Employer Organisation (PEO)

What is a PEO?
A PEO provides employee management solutions such as pay and benefits, recruitment, and payroll. A PEO can be enlisted as a co-employer or become the employer, taking care of finance, benefits, tax, and insurance.

How does PEO help agencies and contractors?
A PEO is useful for agencies who don’t have their own finance department. The agency outsources all payroll activities to the PEO who accepts all responsibility for contractors’ pay.

Umbrella

What is an umbrella company?
An umbrella is very similar to a PEO and they are often confused as the same thing, but there are some significant differences. An umbrella company hires contractors and is the contractor’s employer. The umbrella company then sub-contracts the contractors to agencies or end-hirers. As an employee of the umbrella company, contractors get all the benefits of being an employee rather than a contractor, including things like holiday and sick pay or parental leave.

How does an Umbrella help agencies and contractors?
Umbrella companies effectively facilitate payments between contractors and agencies or end-hirers. They are beneficial for contractors who often take on short-term contracts but need the benefits of long-term employment. Compliant umbrella companies provide a comprehensive service to contractors and agencies, from payroll through to advice on compliance and legislation.

Payroll Bureau Services

What is a Payroll Bureau?
Payroll Bureau is a partly in-house and partly outsourced payroll model. While some elements of an agency’s payroll are managed in-house, for example payments, other factors, such as processing pay calculations and HMRC reporting, might be outsourced.

How do Payroll Bureau Services help agencies?
Payroll Bureaus help agencies maintain control of their business, by allowing them to choose which areas of payroll can be outsourced. You might choose to outsource certain functions due to time or cost saving, or because of a lack of skills within your in-house payroll department. Payroll Bureaus are also able to provide expert guidance on legislation and compliance.

Construction Industry Scheme (CIS)

What is CIS?
CIS is the national tax deduction scheme for the British contractors who work in the construction industry. It is intended to minimise tax evasion in self-employed construction contractors. Under the CIS scheme, contractors deduct money from a sub-contractor’s wage payment, which is then passed on to the HMRC. If sub-contractors are registered for CIS, their deductions are taken at a lower rate.

How do CIS Umbrellas help agencies and contractors?
There can be hefty fines and consequences for failing to comply with CIS. CIS umbrella agencies facilitate payroll for the entire CIS process, which ensures that contractors are paid the right amount on time, HMRC gets the right cut, and the process is fully compliant.

At Ship Shape we offer a variety of payroll solutions to suit your specific needs including umbrella, PEO, Bureau, and CIS. Talk to us today about how we can help you save money and stay compliant while maintaining an eye on the financial future of your business.
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