Alternative Pay Options For Private Sector Contracting Post April 2020

Personal Service Companies (PSCs) have long been a popular choice for contractors working in the private sector. However, with the Off Payroll Private Sector IR35 Reform looming, other methods of contracting are increasingly being sought after.

For some individuals, and the agencies or businesses that engage them, the only model they’ve ever known is operating via a PSC. Now they’re facing a decision. Adapt or risk disruption as a result of an incorrect decision regarding employment status.

Want to survive and thrive? We explore the alternative options for private sector contracting post April 2020 and how each will keep you on the right side of the taxman.

What’s happening with PSCs?

Providing services through a PSC gives responsibility to the contractor to consider their IR35 status and provide evidence of their status for each project they are working on. It is their duty to pay the appropriate level of tax and National Insurance Contributions NICs (if any) and ‘on their heads be it’ should HMRC perceive them to be a ‘disguised employee for tax purposes’ and avoiding paying the correct amount of tax.

From 6th April 2020, it will be the responsibility of the engager (end client) to decide the employment status of any contractors they use, and the fee payer (agency or end client) to confirm the status and pay any associated costs, including penalties in the event of an incorrect . Under the proposed legislation, if HMRC cannot recover unpaid tax from the fee payer, the intention is to then focus on the next ‘stakeholder’ in the supply chain – to a point where HMRC will pursue all stakeholders until the unpaid tax, interest and fines are recovered. This is different to existing ‘liability’, which currently lies with the director of the PSC.

The legislation will not stop contractors from operating through a PSC, although businesses may be less inclined to utilise them a result of the risk.

What’s more, if they are deemed to be an employee in all but name, they will be caught insight IR35 and therefore taxed as a permanent employee via PAYE.

Alternative pay options


A little bit of knowledge does a lot of damage. Businesses aware of their new role, but uncertain of what’s required of them, are likely to falsely classify their contractors. They may choose to bring them all under PAYE and avoid the responsibility of judging each contract on a case by case basis.

Under PAYE, contractors are engaged (in the main) as a ‘worker’ under a contract for services and, will have income tax and NIC contributions deducted from their earnings at source. It’s a safe move for businesses as far as compliance is concerned, but costly, as both parties will be forced to pay more to HMRC. For their contractor freelancers, it may be a price too steep to pay.

Those that don’t look elsewhere for work are likely to hike up their rates in order to absorb their new tax and NIC contributions. This, in turn, will affect both the business’ willingness to engage flexible workers, and contractors’ ability to find suitably paid opportunities.

2. Umbrella companies

Umbrella companies are a popular alternative. In essence, an umbrella company is a payroll service provider that employs the contractor using a genuine Contract of Employment. For businesses and agencies, they’re a hassle-free solution, removing the new responsibilities, and therefore risk, coming from 6th April 2020.

In this option, the umbrella provider agrees and signs a Contract for Services with the agency; the contractor signs a Contract of Employment with the umbrella provider (its employer). Workers then submit the hours worked and their employer raises the invoice with the agency (sometimes the end client) and pay is received. The employer will make the necessary tax and NIC calculations, making the deductions at source. The employee then receives their pay, along with a payslip.

This presents all parties a hassle-free alternative post-April 2020. Contractors gain access to employee benefits, while their clients have an easy way to engage workers and remain compliant. The  list goes on, but umbrella isn’t the only option…

3. PEOs

A professional employment organisation (PEO) is an employee management service. Like an umbrella company, PEOs allow businesses to completely outsource employment responsibility, although to a much higher degree. Despite primarily focusing on HR functionality, a PEO will handle payroll and administration.

PEOs are expected to guarantee all employees (lapsed contractors) enjoy their statutory rights in between assignments, find assignments in the first place, and access benefits like flexible holiday pay and minimum working hours.

Ready to explore your options?

It can be difficult to weigh up the options when there are so many factors to consider. That’s why Workr are dedicated to helping you find the best solution for your situation, as well as taking care of your pay requirements once you’ve chosen the way forward.

We’ve combined our expertise and comprehensive resources to create an IR35 Hub that provides answers to your questions. But if you’re seeking personal support, please get in touch with the team today on