Contract work, umbrella companies and PRSI classes... please explain

the_amazing_raisin

Hi folks,

So it looks like my next job is going to be some freelance contracting in the software industry

I've always worked as an employee so I'm trying to figure a few things out before I start

One thing I've been looking at is paying an umbrella company to handle all the payroll and accounting. I know a lot of contractors end up creating a company, however I'm not sure this will be a long term move so I'm thinking to go with the umbrella company for now

From my research, there seems to be two options, being a PAYE employee or a director

The PAYE option seems cheaper in terms of fees, and results in me having PRSI A-class which means I've some more benefits (illness benefit probably being the most relevant one)

The director option is PRSI S-class which means fewer benefits if I'm out of work. I'd still be eligible for jobseekers benefit, which is probably the most important one overall. Apparently the option of being a director incurs less tax, although I can't figure out how this is the case as I thought PRSI rates are the same. The fees also seem a bit higher so that's something to consider

Overall I'm leaning towards the employee option over the director one given how this could only be short term

I'm wondering if anyone has any experience of this and can fill in any details I've missed with either option?

Thanks in advance!

the_amazing_raisin

Okay I think I might have partly found the answer to my question, PRSI class S (self employed) does not pay the employer portion of PRSI tax

As a PAYE employee with Class A, there's also the employer tax of up to 11.05% to consider. I imagine the umbrella company will deduct this from my earnings to cover their tax liability if I go down the PAYE employee route

extra-ordinary_

"From my research, there seems to be two options, being a PAYE employee or a director"

Also, sole-trader.

spakman

https://www.boards.ie/discussion/comment/122699232#Comment_122699232

A lot of agencies won't deal with sole traders, has to be a company (umbrella or not).

retalivity

Generally, if you're only going to be contracting for a short while before going back to being a 'regular' employee, pick the Umbrella PAYE employee option - less hassle, not much difference in benefit.

If you're are going to be contracting for a longer period (1yr+), look at the umbrella director option - more paperwork, but scope for more benefit (pension entitlements, expenses etc.).

If contracting is looking like your future (multi-year), look at setting up your own company - increased benefits, tax advantages, etc.

the_amazing_raisin

https://www.boards.ie/discussion/comment/122699290#Comment_122699290

When you say the director option is more paperwork, is it just the Form 11 or is there other stuff as well?

I'm sure the umbrella companies can explain a lot of this but I want to make sure I know the right questions to ask first

the_amazing_raisin

https://www.boards.ie/discussion/comment/122699257#Comment_122699257

This seems to be the feedback I'm getting as well, for whatever reason sole traders are a no-no in contracting

retalivity

https://www.boards.ie/discussion/comment/122700392#Comment_122700392

Been a while since I did it, but think there was more documentation required to get setup with the CRO, id & kyc checks etc, a lot more than just being an umbrella employee. And also, the different tax submissions required at year-end as well.

the_amazing_raisin

https://www.boards.ie/discussion/comment/122701075#Comment_122701075

Cheers, I'm talking to one umbrella company now so I'll definitely ask them about the paperwork requirements

They said they'll do the Form 11 as part of the package if I've all my paperwork in with them by June. Given it's October, I presume that means I'm on my own for 2024

I might start with the employee option for now and switch later, they seemed to indicate that's no issue

Can you remember if there's any problems going from self employed to employee again? I'm guessing you'll need to do a Form 11 for the relevant tax year and will be Form 12 from the next full year onwards