Worker status & pay
What is PAYE in an agency context?
PAYE is the system by which income tax and National Insurance are deducted at source. An agency paying a worker directly through PAYE operates it and reports in real time.
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<img src="https://agencyoptix.co.uk/glossary/paye/diagram.svg" alt="PAYE — diagram from AgencyOptix" width="880" height="620" loading="lazy">
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<a href="https://agencyoptix.co.uk/glossary/paye">What is PAYE in an agency context?</a> — diagram by
<a href="https://agencyoptix.co.uk">AgencyOptix</a>
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</figure>It is the simplest and most transparent of the payment routes: the worker sees a payslip from the agency, the deductions are the statutory ones, and there is no intermediary taking a margin.
Employer National Insurance and the apprenticeship levy sit on top of the worker's pay rather than coming out of it, which is what makes a PAYE rate and an umbrella assignment rate different numbers.
Real time information reporting means errors surface quickly, which is an advantage over routes where a problem emerges as a tax bill years later.
What goes wrong in practice
- PAYE and assignment rates compared as though they were equivalent.
- Employer costs not explained, so a worker believes they are worse off than they are.
- Payslip detail insufficient for a worker to check what they were paid for.