Umbrella Company Vs Own Limited Company

Social Security implications and Benefits

In general, Pay Related Social Insurance (PRSI) contribution classes aredecided by the nature of a person’s employment and the amount of the employee's earnings.  Most employees pay PRSI contributions at Class A and are covered for all socialwelfare benefits and pensions. 

Self-employed people are covered for certain pensions, maternity and adoptivebenefit, guardian's payment (contributory) and the bereavement grant and pay ClassS.

It is really important for contractors to know and understand the nature oftheir employment, particularly when they are using the services of an umbrella company provider.

Own Limited Company

In general, if you are a proprietary director controlling your own limitedcompany you will pay PRSI contributions at Class S.  Class S covers self-employed people, including certain company directors, and certain people with income from investments and rent.  Class S is charged at the rate of 4% on all income.

Umbrella Company

When using the services of an umbrella company provider you will either jointhe umbrella company as an employee (and pay contributions at Class A) or as a controlling director (and pay contributions at Class S).

Rate of Social Security

There is a big difference in the rate charged.  Class A contributions are paid at therate of 4% on all income over €127 per week.  In addition, there is an employer’s charge at 10.75% on all salary paid to you.  So, for example, if you are an employee of an umbrella company and your salary is €50,000 per year, together with your employee’s contribution at 4% the umbrella company (being your employer) would have to pay the employers contribution at 10.75% (which would amount to €5,375 on an annual salary of €50,000).

Class S contributions are paid at the rate of 4% on all income.  There is no employers charge (as you are notan employee).

Class A benefits v Class S benefits

There is also a big difference in the benefits covered by the differentclasses.  Please click on the PRSI Benefits table to find a summaryof the benefits covered by Class A and Class S. From which you will see that, broadly speaking, Class S will only cover you for old age contributory pension and maternity/adoptive benefit.  When paying Class S you will not be covered for unemployment benefit in the event that your contract ceases.

Class A covers the most comprehensive range of benefits, including old-agecontributory pension, unemployment benefit and treatment benefits.

Conclusion

You need to know what contribution class you are covered by. Are you coveredby Class A or Class S?  You will then know what benefits you will be entitled to in the, hopefully unlikely, event that you are out of work.

Imelda Prendergast is Partner OSK Contracting and OSK Small Business Support.

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