Alternatives to Hiring an Independent Contractor (UK)

Topics Covered

Advantages and Disadvantages of:

• Private Limited Companies (PLCs)
• Umbrella Companies
• Employer of Record (EOR) or Professional Employer Organization (PEO)
• Worker

Private Limited Companies (PLCs)

Creating and working through an intermediary or a Private Limited Company (PLC ) is beneficial as it’s considered a business transaction without employer costs or responsibilities.

Advantages:

• No PAYE obligation when working with a PLC
• No employer costs such as Employer NIC
• Contract by project and scope of work without a long-term commitment

Umbrella Company

An umbrella company employs contractors working on temporary assignments or contracts. The contractor becomes an employee of the umbrella company, therefore having the same employment rights as permanent employees.

Advantages:

• No PAYE obligation as the umbrella company pays its contractors through the PAYE system
• The umbrella company shoulders employer costs such as NIC and taxes

Disadvantages:

• Lack of Loyalty - Since temporary employees know they are only at your company for a short time, they can lack motivation and have lower productivity due to their lack of permanence.
• Alignment in Values - umbrella companies may not understand your exact needs and company culture. It's important to provide them with specific qualifications and traits to ensure you and the potential employee are a good fit.

This is a good option if you’re looking for people to fill in roles temporarily and find them quickly.

Employee of Record (EOR) and Professional Employer Organizations (PEOs)

EORs and PEOs provide a streamlined option for hiring employees with the ability to respond quickly to growth within your business. With EOR/PEO services, you get control without taking on legal entity liabilities, contractor risks, or sacrificing talent.

A PEO differs from an EOR in that a PEO has a joint relationship with the employer. They take on more of an outsource HR role aiding in employee management, benefits, and payroll, in addition to the hiring process. An EOR is the legal employer of the contract employees for tax purposes. They take care of all employer responsibilities, such as; employee benefits, workers' compensation, and insurance. For more information on the general differences, advantages, and disadvantages of PEOs and EORs, see our US article on independent contractor hiring alternatives.

Advantages:

• Allows you to hire foreign contractors in the UK
• A Fast and efficient way to develop a workforce in a new country or region

Disadvantages:

• Less control over the hiring process
• Limitation of power over contracted employees as formal disciplinary action and/or human resource protocols often run through the EOR or PEO.
• PEOs are often not liable for compliance with labour laws
• Larger expense compared to other hiring routes

Worker

The UK has another employment category called ‘workers’, which operates under IR35, or the Off-payroll working rules. In general, workers are not self-employed individuals or employees, and are commonly known as casual workers or agency workers. Employing workers is a significant expense, especially if you’re planning to hire a lot of people, so it's critical to make the distinction between a worker and a self-employed individual, and employee. For additional information see our article UK Workers vs. Independent Contractors.

Advantages:

• As an employer, you’re not obliged to provide consistent work in the duration of your contract.
• Workers are great to engage for one-time tasks or projects
• Workers are cheaper to hire compared to full-time employees

Disadvantages:

• It can be expensive if you are needing to hire a larger number of people
• The business takes on most, if not all financial risk of the worker