How to Choose the Best Umbrella Company

Top tips for choosing the best umbrella company

Working through an umbrella company is an appealing option taken by thousands of contractors in the UK. As an easy, hassle-free way to work, umbrella companies ensure contractors are exempt from IR35 legislation, work out and deduct tax and National Insurance contributions, allow contractors to enjoy statutory rights whilst giving them the freedom and flexibility to choose what contracts they work on and when.

With increasing numbers of contractors taking this route, more and more umbrella companies have opened to cater for demand.

Although this gives contractors plenty of choice, with every company claiming to be the best umbrella one out there, it can also leave contractors wondering which way to turn.

To help contractors choose the best route forward, Umbrella Supermarket explain how every contractor can choose the best umbrella company for their contracting needs.

What is an umbrella company?

Let’s start with the basics – what is an umbrella company and how does it compare to other contracting options?

Contractors can follow a few different routes when it comes to how they contract:

  • Limited company: here, the self-employed contractor sets up their own limited company, is responsible for sourcing their own contracts and working out and paying their own tax and National Insurance contributions. Limited company contractors do not receive statutory rights such as holiday and sick pay since they are not employed. Finally, it is the responsibility of the contractor’s client to determine whether a limited company contractors is inside or outside of IR35 legislation.
  • Agency PAYE: on the other hand, agency PAYE contractors are employed by an agency who chooses what contracts the contractor works on and when. In exchange for a fee, the agency pays the contractor a salary, taxing them under the PAYE system. As employees, contractors therefore receive statutory rights and are exempt from IR35.
  • Umbrella company: umbrella companies offer all the benefits of a PAYE agency, with the contractor being taxed under the PAYE system, however the key difference being that with an umbrella company, contractors are free to source and secure contracts of their choosing, giving them greater freedom and flexibility.

Umbrella companies are a great bridge between self-employment and employment, offering contractors the benefits of choosing their own work whilst giving them statutory rights and taking care of tax and admin liabilities.

As employers, Umbrella companies also cover contractors under their Professional Liability & Professional Indemnity Insurance which are compulsory requirements for all contractors.

It’s clear to see why this is such a popular option for thousands of contractors. However, the difficult part is choosing the best umbrella company for you. After all, contractors need to ensure they pick a great umbrella company that is suited to their personal preferences – whether that’s finding the most cost-effective company or seeking one that can help with child credits.

How can contractors choose the best umbrella company?

With so many umbrella companies competing for your business, the first step is to use an umbrella company comparison tool to refine down the number of companies you are looking at based on your personal preferences.

Umbrella Supermarket’s award-winning umbrella company comparison tool allows you to enter your preferences and generate a list of the best umbrella companies for you in just 2 minutes.

The results will display your net take home pay, range of benefits and what taxes you will pay with that particular umbrella company.

Now you’ve whittled down the number of umbrella companies to just a handful, you should next look at some generic criteria to help you find the best fit for you:

What service fees does the umbrella company charge?

Every umbrella company charges the contractor a fee in exchange for their services. However, fees vary from company to company.

There are two ways umbrella companies charge contractors:

  • Flat-rate fee: this is a set fee, usually taken weekly or monthly.
  • Percentage fee: this is a percentage of your earnings. This means if your fee increases, so does the amount you pay the umbrella company. For this reason, most contractors find a flat-rate fee preferable as this option avoids contractors paying more money for the same level of service.

What payment terms does the umbrella company offer?

Another thing to look at when comparing umbrella companies is when and how often they pay you.

Check the umbrella company’s payment terms to clarify whether they pay weekly, fortnightly or monthly, to find the option that best suits your lifestyle.

The other important thing to look out for is that you will be paid on time. Although this is difficult to predict, there are some signs to look out for:

  • If the company requires your timesheet to be approved before it is paid, this can cause delays in payments.
  • If a company states that they will pay you only once that have been paid, this can also cause delays and isn’t fair in the context of an employee-employer relationship.

What level of insurance does the umbrella company offer?

As your employer, the umbrella company is required to cover you with employer’s liability insurance which covers you in case you become ill or injured at work.

In addition, many umbrella companies offer professional indemnity and public liability insurance which are usually required in your contract. This is a good sign meaning you don’t have to pay for this out of your own pocket.

To give themselves the competitive edge, some umbrella companies will also offer additional levels of cover. Although this will be irrelevant to some contractors, it is handy for those contractors who require specific kinds of insurance.

Other fees to look out for

Some umbrella companies will charge additional fees on top of their fixed or percentage fee.

These additional costs are important to look out for as they can significant.

These include:

  • Sign-up fees when you join the company
  • Exit fees when you leave the company
  • Additional fees for insurance cover
  • Extra fees for admin tasks such as processing expenses

Ready to find the best umbrella company with Umbrella Supermarket?

Umbrella Supermarket’s quick and easy to use umbrella company comparison tool lets every contractor find the best umbrella company to suit their personal needs and preferences in just 2 minutes. Contractors can input their details, click go and find the best umbrella company them.

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