Recruitment agencies are constantly navigating the tensions between hirers’ cost pressures and contractor expectations. With April 2025 bringing fresh cost implications and employment law changes, agencies need innovative, compliant solutions that balance profitability, transparency, and worker satisfaction.
This is where Professional Employer Organisation (PEO) models come into play, offering a cost-effective and transparent alternative to traditional umbrella payroll solutions.
Why recruitment agencies need to rethink payroll models
Traditional umbrella payroll has long been the default choice for many agencies, but it comes with significant challenges:
- Complex payslips that make it difficult for contractors to understand their earnings.
- Hidden costs and fluctuating deductions, eroding contractor trust.
- Higher operational costs for agencies, particularly when workers opt out of pensions or work part-time.
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With new cost pressures in 2025, agencies need a payroll model that protects their margins, attracts talent, and ensures compliance.
How PEO is revolutionising payroll for lower-rate workers
PEO offers a simpler, more predictable alternative to umbrella models. Unlike umbrella payroll, which includes variable deductions such as employer’s National Insurance and pension contributions, PEO provides a fixed, transparent pay structure—mirroring direct employment.
Key benefits include:
- Fixed take-home pay – Contractors receive consistent earnings, eliminating confusion over payslip deductions.
- No double deductions – Workers no longer pay both employee and employer deductions from their gross pay.
- Lower costs for recruitment agencies – Savings from pension opt-outs and National Insurance thresholds are passed upstream, improving agency profit margins.
Real savings: How PEO reduces payroll costs for agencies
Recruitment agencies can unlock significant savings by switching from umbrella to PEO. Here’s a typical example of savings before auto-enrolment pensions apply (first 12 weeks of employment):
| Payroll model | Charge rate (hourly) |
Weekly cost (based on 40 hours) |
|---|---|---|
| Traditional umbrella | £16.27 | £650.80 |
| PEO (with pension saving up streamed) | £15.95 | £638.00 |
| Total savings per worker | £0.32 per hour | £12.80 per week |
For agencies with large contractor volumes, these savings add up quickly, directly improving profit margins while maintaining compliance and contractor satisfaction.
Why PEO could be the right choice for your agency in 2025
As agencies prepare for upcoming employment law changes and cost increases in April 2025, sticking with traditional payroll models could become unsustainable. PEO offers a smarter, fairer, and more transparent approach that benefits:
- Recruitment agencies – Lower payroll costs, improved profit margins, and reduced compliance risks.
- Hirers – Greater confidence in cost transparency and compliance.
- Contractors – Consistent take-home pay with no unfair deductions or hidden fees.
By adopting PEO, agencies can future-proof their payroll strategies, build stronger contractor relationships, and increase financial stability in an evolving market.
Want to learn more about how PEO can benefit your agency?
Get in touch with QPS today to explore how PEO can help you unlock savings and ensure compliance in 2025.
We’re always happy to have a friendly, no-obligation chat about how we can support your agency to grown with our comprehensive range of solutions.
