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I have a permanent role in UK that pays £130,000 base salary plus a car allowance of about £6,900. I also receive a bonus (£20,000 per year). Finally my company contributes 10% to my pension plan,I have medical/dental insurance and 25 days of holidays (on top of bank holidays).

Should I decide to move to a contract role PAYE, what day rate would correspond to my current package?

The total cash I get is about £156,900 per year + £13,000 contributed to my pension. Is there a way to take into account all this plus the 25 days holiday and the other benefits to come up with an equivalent daily rate that would give me the same overall treatment assuming I can keep the contract role for 1 year?

UPDATE:

I just read that contractors with PAYE day rate have also the following benefits, more similar to what you get as permanent.

Source: https://www.24-7staffing.co.uk/blog/2018/04/paye-vs-ltd-company-contracting-which-is-really-better-for-you

Paid annual leave – this means that agency workers on PAYE can rest assured on getting the same paid annual leave as many of their permanent counterparts, meaning they don’t have to save up extra money to cover nearly six weeks of annual holidays.

Statutory Sick Pay for 28 weeks if the assignment remains open. A major stress factor for the self-employed is “what if I’m ill?” and whilst SSP isn’t as much as you’d normally earn, it is something, and again puts you on a par with most full-time employees nowadays.

Pension contribution. The Government’s pensions auto-enrolment legislation does not apply to contractors, and can provide a significant advantage.

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  • Why would you only look to replicate your current full-time earnings? Why give up the job security and get nothing in return?
    – Mike Scott
    Aug 21, 2020 at 5:42
  • That's why I want to know the equivalent day rate and then decide the minimum acceptable number. I mostly want to understand what logic should I follow to make the conversion so that then I can play with the numbers and decide.
    – Diuoo
    Aug 21, 2020 at 7:21
  • My understanding is that there are different kinds of contractor here. If you are on a contract through an agency, the agency is your employer and so takes on providing for things like paying for annual leave. However, if you are an individual contractor, invoicing the company directly, the situation is different.
    – Andrew
    Aug 21, 2020 at 10:05
  • I guess the former you mentioned is what goes under the PAYE category? These seem to be the only opportunities available nowadays. All the role I saw are paying a daily PAYE rate.
    – Diuoo
    Aug 21, 2020 at 10:51
  • I really would not include your specific agency's details here.
    – Fattie
    Aug 21, 2020 at 17:10

2 Answers 2

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If you figure that there are about 210 working days in the year, after deducting 33 holidays and an allowance for sick leave, then you can just divide the total package value by that number to get a daily rate. It would be about £850 in your case. If you want to add in the value of the medical insurance and other benefits in kind, you should find them on the P11D form that your employer gives you annually.

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  • I added a link to my post. They say that as PAYE contractor you accrue holiday allowance as if you had a permanent employment. Does that change the calculation you suggest?
    – Diuoo
    Aug 21, 2020 at 9:34
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What your employers pays will be more than what you've specified, as there's also the Employers' NIC of 13.8%. I'm not sure how your bonus is paid and calculated, but at the least that would mean your base salary is paid from a "salary pool" of another £18k on top of the £130k you're describing. It depends on your point of view whether this should also be taken into account or not (but one of the company's primary benefits in moving to a contract role would be in reducing this sum they're paying to HMRC).

From a different aspect, it would be unlikely your holidays would be honoured on the same basis unless you write these into the contract. It would be a lot tougher to get these approved on the same basis as you do right now (or at least in the same amount), however, as for one there would be no need from the company to give you holiday or to "keep the days" you don't spend in one year, etc.

I'd not be as worried about the holiday allowance itself as much as the process of getting specific time off approved. This would be unregulated, and depend heavily on who you'd be in contact with in the company. I imagine that right now you need the approval of your direct supervisor, but in a contracting case, you might need to deal with a contract manager and/or an accounting & billing person in addition to the direct supervisor.

Re the holiday allowance forming a part of the payment, as it is a part of your contract while you are a permanent employee (i.e., your holidays are guaranteed paid days off) they form a part of your working year. In other words, right now your holidays are part of your compensation. If you take this compensation package and spread it out across a "contracting year", you'd be paid for days actually worked, i.e., you'd be including your "holiday allowance" as a small extra for every day actually worked and not be paid for the days not worked. Of course, this might depend, but that's the way I would treat this calculation.

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  • I added a link to my post. It seems that a PAYE contractor also have right to holidays.
    – Diuoo
    Aug 21, 2020 at 9:30
  • I see, I get this. But in terms of calculations, given what I showed in the note in the post, do you think the total package is daily rate time number of worked days (i.e. working days minus holidays, so for example 252-25=227 if I plan to take 25 days of holiday) or daily rate times the number of working days? I don't understand if the daily PAYE rate already includes compensation for the holidays (when you won't get paid) or if you will get that daily rate also on the holidays you are taking.
    – Diuoo
    Aug 21, 2020 at 12:09
  • See my update @Diuoo; last paragraph.
    – gktscrk
    Aug 21, 2020 at 12:35
  • So it is correct to say that the daily rate they offe will include a part as compensation for the holiday that you will take (unpaid). So everyday you accumulate an amount that is going to compensate for those holidays you will take without getting paid. In other words, in my example above, the total money I can get in a year is daily rate times 227 (assuming 252 working days in a year and taking 25 days off).
    – Diuoo
    Aug 21, 2020 at 12:45

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