With the National Minimum Wage (NMW) set to rise in April, recruitment agencies must act now to ensure compliance while maintaining competitive margins. In a tight market, even a small change in costs can impact hiring strategies, contractor retention, and overall profitability.
However, in the unregulated world of umbrella providers, achieving a legitimate commercial advantage can be challenging. Agencies need transparent, compliant, and cost-effective payroll solutions to stay ahead.
What’s changing in April?
From April 2024, the new NMW rates will be:
- £12.21 per hour – Ages 21 and over (+6.7% from £11.44)
- £10.00 per hour – Ages 18 to 20 (+16.3% from £8.60)
- £7.55 per hour – Ages 16 to 17 (+18% from £6.40)
- £7.55 per hour – Apprentices (+18% from £6.40)
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In addition, employer costs are increasing:
- Employers’ National Insurance is rising from 13.8% to 15%
- The National Insurance allowance is being reduced from £9,100 to £5,000
What does this mean for recruitment agencies?
Whether you manage workers on your own payroll or outsource to an umbrella provider, factoring in all employment costs is crucial to compliance. These include:
- Holiday pay
- Employers’ National Insurance
- Apprenticeship Levy
- Umbrella provider margins
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Failing to meet NMW requirements can result in penalties of up to 200% of underpayment, capped at £20,000 per employee.
What are the minimum rates I need to pay to an umbrella provider?
The minimum rate will vary depending on:
- The umbrella provider’s margin
- Holiday pay allowance (usually 12.07%, but higher in sectors like education)
Beyond NMW, agencies must also comply with Agency Worker Regulations (AWR). This ensures that pay is at least equal to a comparable permanent employee, including:
- Salary
- Pension contributions
- Bonuses
Non-compliance with AWR could result in tribunal penalties of up to £5,000 plus compensation for lost earnings.
To simplify this process, we’ve developed a real-time pay calculator that factors in all employer costs and calculates the minimum umbrella rate you should be paying.
How can recruitment agencies create a commercial advantage?
Traditional umbrella models often cause confusion, with complex payslips, hidden costs, and fluctuating take-home pay eroding contractor trust.
Professional Employer Organisation (PEO) – A better alternative
Unlike umbrella, PEO offers a more transparent and cost-effective solution by mirroring direct employment.
PEO provides:
- A fixed, transparent pay structure - similar to direct employment
- No double deductions - ensuring workers receive a stable net pay
- Lower costs for agencies, especially when workers opt out of pensions or work part-time
Cost savings with PEO vs. traditional umbrella
A typical saving of £13 per worker per week (based on 40 hours) when workers opt out of pensions.
Additional savings apply when workers don’t meet the Employers’ National Insurance threshold – these are passed back to the recruitment business, further improving margins.
Example: Pre-auto enrolment pension (first 12 weeks of employment)
| Payroll model | Charge rate (per hour) | Weekly cost (40 hours) |
|---|---|---|
| Traditional umbrella | £16.27 | £650.80 |
| PEO (inc. pension savings upstreamed) | £15.95 | £638.00 |
| Total savings | £0.32 per hour | £12.80 per week |
On the right we have a detailed rate comparison showing cost differences between Umbrella (with and without pension) and PEO.
Both PEO and umbrella are fully employed solutions, but PEO offers a simpler payslip structure and better cost efficiency for agencies and end hirers.
Below we have a detailed rate comparison showing cost differences between Umbrella (with and without pension) and PEO.
Both PEO and umbrella are fully employed solutions, but PEO offers a simpler payslip structure and better cost efficiency for agencies and end hirers.
Want to stay competitive when the National Minimum Wage changes come into effect?
Now is the time for agencies to review their payroll models and explore more cost-effective, transparent solutions.
Speak to our team today to see how we can help increase your margins and create a commercial advantage beyond traditional umbrella models.
