Model one: PAYE employment
PAYE is straightforward in principle: the worker is your employee, you run payroll, deduct income tax and National Insurance at source, and hand over payslips that HMRC has already been squared with. The worker gets employment rights, paid holiday, sick pay eligibility and a pension. You get control, continuity and someone who turns up because it is their job, not just this week's booking.
What surprises companies moving from agency labour to direct employment is the gap between a wage and the cost of a wage. On top of gross pay, a UK employer currently carries three statutory on-costs:
- Employer National Insurance at 15 percent above the threshold.
- Holiday pay accrual at 12.07 percent, the standard rate for 28 days of statutory leave.
- Auto-enrolment pension contributions at a minimum of 3 percent.
Add those together and every pound of wages costs the business roughly £1.30 before overheads. That is not a reason to avoid employment. It is the real price of the loyalty and availability you are buying, and it is exactly the number an agency day rate quietly bundles in. Knowing it lets you compare models honestly instead of comparing a wage with an all-in charge rate.
Model two: CIS direct
The Construction Industry Scheme is HMRC's framework for paying self-employed construction workers directly. The contractor verifies the subcontractor with HMRC, deducts tax from the labour element of each payment, usually 20 percent for verified workers, 30 percent if unverified, or nothing for those with gross payment status, and pays it to HMRC on their behalf. The worker invoices, keeps their own records and settles the balance through their tax return.
What CIS direct means in practice:
- For the company: no employer NI, no holiday accrual, no pension contribution, and no agency or umbrella in the chain. You pay the rate you agreed, plus the CIS deduction handled through your returns.
- For the worker: a higher headline rate than the equivalent wage, because it has to cover the holidays, pension and quiet weeks an employee gets by right. Your rate is your rate, agreed before you start, with nobody between you and it.
The caveat that matters: CIS is for genuine self-employment. If someone works under your direction, on your hours, with your tools, on your sites indefinitely, HMRC may treat them as an employee whatever the paperwork says, and status rules such as IR35 can apply where intermediaries are involved. If a working relationship looks like a job, price it as a job.
Model three: umbrella employment
An umbrella company is an employer of convenience inserted into an agency supply chain. The agency pays the umbrella an assignment rate, the umbrella employs the worker, and out of that assignment rate come the umbrella's margin, employer NI, holiday pay and the other employment costs, before the worker's own tax is even calculated. The worker is technically an employee, but of a company they never chose, that runs no sites and exists to process their pay.
Done properly, umbrellas are legal and sometimes unavoidable inside IR35-caught agency work. But the model puts the least informed party, the worker, furthest from the money. A ContractorCalculator survey of 611 umbrella workers in 2023 found that 80 percent were told the role was umbrella-only with no other choice, only 40 percent could verify their payslip was correct, 19 percent reported problems with holiday pay, and 11 percent had holiday pay unlawfully withheld. The survey drew workers who had experienced problems, so treat it as a map of what goes wrong rather than a census. What it shows is that when it does go wrong, it goes wrong at the worker's expense, inside deductions most of them cannot check.
When each model fits
- PAYE fits your core, permanent workforce: the people you want on every job, whose continuity is worth 30 percent on top of the wage.
- CIS direct fits genuinely self-employed trades who move project to project, carry their own kit and price their own work. Most flexible site labour in the UK sits naturally here.
- Umbrella fits situations where an agency chain and IR35 leave no alternative. Few companies hiring direct would ever choose it, and few workers do. If you are engaging people directly, you do not need one.
How this works on UrProject
UrProject supports the two direct models side by side. You invite your PAYE employees and your CIS subcontractors into My Workforce, run the same clock-ins, timesheets and rate records across both, and pay no weekly fees on any of them. Weekly fees, £25 to £50 per worker by role, apply only to workers you hire from the open marketplace, and only while they are on a live job. Workers pay nothing in any model, and the rate agreed up front is the rate on every timesheet, which removes the payslip mystery the umbrella survey describes.
If you are weighing up what a move from agency labour to direct engagement is worth in pounds, the savings calculator will show you, using your own rates.