PAYE or Ltd

H

heather

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Hi folks

I've been unemployed for 6months and am in the lucky position of having 2 potential job offers in the pipeline.

Offer 1 - 6 month contract under PAYE, salaried @85k per annum.

Offer 2 - 6 month contract establishing a limited company and paid a day rate of circa €420 per day.

Role 1 is more likely to be made a full time permenant role, while role 2 would likely be extended for up to 6 months.

Both roles would involve travel from my home to Dublin, circa 100km each way per day. Given the place of work is based in Dublin, I don't believe I'll be in a position to claim mileage as a limited Co.

In the short term, can anyone advise how much better off I'd be going with the Ltd Co option (say over the term of the initial 6 month contract? I've never used a limited company before and am not 100% sure how it all works.

Thanks a million
 
It's a while since I did this calculation, but it's something like the following:

Under option 1, you will earn €42,500 gross in 6 months.
You will be paid for 26 weeks x 5 days = 130 days
You will get 10 days holidays and about 5 bank holidays, so you will actually work 115 days.

Under Option 2 you will work 115 days @€420 so you will earn a gross salary of €48,300

You may get maternity benefit, sick pay etc under option 1, but not under option 2. However, you are more likely to get paid overtime under option 2.

Your income tax will be the same under both options. You may be able to claim some expenses as a company but you should not rely on it.

I think that you will pay the same Employees PRSI under both options. You will pay the same USC.

If you set up a company and you are a director, you will not pay Employers PRSI. If you operate through an Umbrella Company you may have to pay Employers PRSI out of the gross pay i.e.
Gross pay before Employers PRSI: €43,600
Employers [email protected]%:€4,700
Total fees: €48,300

Social welfare issues:
If you are an employee, will the 6 months or more extra PRSI payments re-qualify you for Jobseekers Benefit?
There are issues such as dental benefit as well.

Pension issues
If you are thinking of making big funding contributions, I think that the company option gives you more choice.

Long term
It seems to me that the better career potential and employment protection in being an employee outweigh any small short-term financial advantage a limited company might have.

It would also help in the future if you are trying to mortgage or re-mortgage.
 
Thanks Brendan, some really worthwhile stuff in there, in particular around future social welfare payments, sick pay etc. Also based on your figures, the gap between the earnings is not nearly as wide as I thought it might be. I'm certainly leaning towards the PAYE option, will try some additional negotiation around working from home and likely go with this option.
 
Certainly dont go Ltd company expensive to open and shut down for such a short contract....if you go PAYE you can get jobseekers allowance and end of contract if f you are Ltd or in umbrella you can't

With an umbrella you will save in tax but basically you have no entitlement to anything once contract is over

If you think the contract is at least a year I would go umbrella otherwise PAYE


You may also get sick Pay on Paye
 
Raging Bull said:
Certainly dont go Ltd company expensive to open and shut down for such a short contract....if you go PAYE you can get jobseekers allowance and end of contract if f you are Ltd or in umbrella you can't

With an umbrella you will save in tax but basically you have no entitlement to anything once contract is over

If you think the contract is at least a year I would go umbrella otherwise PAYE


You may also get sick Pay on Paye
Click to expand...

Not strictly true. Your right to jobseekers is not based on your previous 6 months work. It is to do with the amount of PRSI contributions made in the relevant tax year which is two years previously. (Even at that, there are numerous different ways to qualify based on previous PRSI paid. Taking a 6 months contract or even a year will not have an impact immediately but it could in two years time if you went to claim. Of course, as Brendan mentioned, under an umbrella structure, you have the ability to go down the employee or the director route with regard to the level of PRSI paid.
 
Sunny said:
Of course, as Brendan mentioned, under an umbrella structure, you have the ability to go down the employee or the director route with regard to the level of PRSI paid.
Click to expand...

Sunny

This was the bit I was not sure of. Why would one choose to go the employee route over the Director route? As an employee, the company would have to pay 10.75% employers' prsi. Or does the director of an umbrella company have to pay that as well?
 
Brendan Burgess said:
This was the bit I was not sure of. Why would one choose to go the employee route over the Director route? As an employee, the company would have to pay 10.75% employers' prsi. Or does the director of an umbrella company have to pay that as well?
Click to expand...

As far as I know, yes. If you have an Ltd, you pay your own employer PRSI (same with an umbrella company, they pay it on your behalf, but it's your money).

As a rule of thumb, taught to me by colleagues who have been contractors for over a decade, it pays off to be a freelance when you can become a HPC (highly paid consultant), i.e. with a gross revenue double than the one of an employee. I have to add that they all left Ireland, because the gap between PAYE and contractor, in terms of revenue, is too low. Some are in the UK, some in Europe, and quite a few are in the US, where freelancing seems to be going strong.
 
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