Limited company vs P.A.Y.E. umbrella in france
There are many advantages to working for a PAYE umbrellas or portage over that of openning your own limited company, most especially for short-time contractors.
PAYE umbrella is also the employment of choice for individuals who wish to test the waters for their business or profession without having to go through the many admisitrative requirements that come with setting up and maintaining their own business.
Likewise, individuals with little to no experience with back office work and just wish to earn take the PAYE umbrella route to secure quick and hassle free contractual jobs and receive a salary.
Foreign contractors who find opportunities in France could also seek employment under PAYE umbrella companies to facilitiate their business or trade faster.
What is a PAYE Umbrella?
When you apply for an umbrella company you apply as their employee. Being their employee you avail of several employee benefits and attain an employee status.
For individuals who wish to have their business take wing quickly or work short-term contracts, they may opt to seek employment under a PAYE umbrella.
Since well-known PAYE umbrella companies are already registered and acknowledged, you gain representation thru the umbrella to set up your business or trade. All of this without putting up a capital or bank account therefor zero liability.
PAYE generally stands for Pay As You Earn. This is how umbrella companies operate.
The employee simply pays the umbrella company a portion of what they earn in exchange for the umbrella managing the administrative obligations the employee would have if he/she were a sole business operator. Computed tax and National Insurance are also deducted from the employee’s salary.
PAYE Umbrellas are the in between guys
A contract is formed between the employee and the umbrella and one between the umbrella and the client. The employee works under his/her own terms and is responsible for negotiating with the client but it’s the umbrella’s job to invoice them.
Once a contract has been fulfilled and the employee is now ready to collect, the client does not pay the employee directly but instead pays the umbrella. The umbrella deducts its fees from the amount paid and what’s left is the employee salary.
So the contractor takes home a sizeable percentage of the contract earnings as opposed to the whole amount.
First contact with ABC Portage
Presentation of the project, FAQ
Finalizing your contract with your Business customer
ABC offers the necessary logistics
Sign the “Portage Agreement” between you and ABC Portage
This contract confirms our partnership
Sign the “Project Contract” between ABC Portage and your Business customer
Outline contractual conditions regarding the project and your client
Sign the “Employment Contract” between ABC Portage and You
Security for your job status
Transfer of salaries
According to your timing and with total transparency
PAYE Umbrellas open a host of opportunities
The French government acknowledges the ligitimate opportunites that PAYE umbrellas present, owing to the growing market for them and have thus released an ordinance the reguilates and aids in the efficiency of their operation in the country, even in private sectors.
The ordinance also gives rights to both the company and their employees.
What is a limited company?
On the other side of the spectrum, there is also the option of openning and operating your own limited company. Limited companies in France take on two forms: Entreprise Unipersonelle à Responsibilité Limitée (EURL) and Société à Responsabilité Limitée (SARL). A sole operator runs a EURL and any business that has more than one operator is relegated as an SARL.
The advantage of having limited company over employment under a PAYE umbrella is that it is entirely your own. You are not represented by a company but instead you work for your own, on your own.
Setting up a business in France is relatively easy provided you have the necessary permits. A business could also be established for as low as €1. The troulble lies in managing the accounts and paperwork, which is a long and tedious process.
Filing your taxes is also a chore. PAYE umbrella employees file a simplified version of it because the umbrella handles most of the bulk for them in lieu of a fee.
In limited company, the contractor takes home the entire payout of the contract however they are left to deal with back office work and tax filing on their own.
A sole or multiple proprietors are held completely liable and risk having their assests seized in the event their businesses go under.
There are also laws that protect business owners of course. And for some, these are risks they are willing to take to see their work paying.
Here is a summary of the PROS and CONS of both limited company and PAYE Umbrella:
Sole proprietor has total control over his/her benifits
The amount of paperwork and back office filing; self-management
Work then Earn Scheme
Employess don’t chase after clients but instead waits for the umbrella to do this; may experience delay of payment
Tax planning, eligible for Flat Rate VAT
Short-term contractors are not siuted for it
Salary has already been deducted of tax and NI so you no longer have to settle it yourself
Costly employment; only a percentage of contract payment is received because a fee is alotted to the umbrella company and other expenses
Bigger payout because the entire contract payment is collected
A more complicated tax filing system
Simple and easy employment for those individuals who are working on short-term contracts, aren’t looking for anything permanent, drifting between jobs
Advantageous for long-term and large sum contracts
Employee status only