What To Look Out For When Comparing Umbrella Companies

How to Compare Umbrella Companies

Is an Umbrella Company right for you?

Before we look at comparing umbrella companies, first contractors must determine whether an umbrella company is the right option for them.

There are many benefits to operating through an umbrella company:

  • Joining an umbrella company is quicker, easier and cheaper than setting up your own limited company.
  • Umbrella companies make contracting easy. They take on business and admin tasks such as invoicing the client, chasing payments and paperwork and admin that you would have to do yourself if you worked through a limited company
  • The umbrella company employs the contractor, meaning they receive a stable salary and that their tax obligations are taken care of through the PAYE system. This is unlike a limited company contractor who has to pay tax through self-assessment which can often be tricky and time consuming
  • Umbrella company contractors are entitled to statutory benefits such as holiday pay, sick pay, a workplace pension and maternity or paternity leave
  • Umbrella contractors are automatically exempt from IR35

After looking at the benefits of working with an umbrella company, if you’ve decided this is the way to go, it’s time to start comparing companies to find your perfect fit.

Umbrella company fees

One thing to compare between umbrella companies is what fees they charge.

Every umbrella company charges fees in exchange for the services they provide the contractor, such as covering them with the necessary insurance, working out and deducting the correct levels of tax and National Insurance, taking on paperwork and admin tasks and offering them statutory benefits.

Umbrella company fees can be charged in one of two ways, either as a fixed fee or percentage fee.

Whereas a fixed fee is a set amount, a percentage fee is a cut of your invoices. This means that if the contractor starts to earn more, they will pay more in fees for the same level of service from the company. For this reason, most contractors prefer to pay fixed fees.

Contractors should also consider whether there are any additional fees to account for as some umbrella companies can also charge:

  • Sign-up fees
  • Exit fees
  • Fees for same day payments
  • Fees for additional admin tasks such as expense processing

Insurance

As the umbrella company employs the contractor, they must have employers’ liability insurance. This is a legal requirement for all employers in the UK and protects workers should they become ill or injured at work. Therefore, it’s important to check that the umbrella company will provide you with this when comparing which company to choose.

What’s more, contractors may expect an umbrella company to cover them with professional indemnity and public liability insurance. Although these aren’t legal requirements, they are usually in the client contracts meaning you will have to cover the costs yourself if they are not provided by the umbrella company.

Payment terms

Another thing to look at when comparing umbrella companies is what payment terms they offer.

It’s important to ensure that the umbrella company you choose will make the payment process as quick, easy and stress-free as possible.

You will need to look at how often the umbrella company makes payment runs. A good umbrella company will usually make payment runs several times a week, meaning they should be able to pay you quickly after you have submitted your timesheet.

It’s also important to check that you will get paid on time. Avoid any company that makes it difficult to get paid, such as those that require paper timesheets, or those that require timesheets to go through an approval process before they are paid.

Finally, every contractor should look at for any catches or bottlenecks that can cause payment delays. For example, no umbrella company should say that they will only pay the contractor once they have been paid as this is not appropriate in the context of the employer-employee relationship.

Contractors should also look at how often they will get paid, whether that’s same day, weekly, fortnightly, monthly or another frequency, to find the best option for them.

Expenses

Contractors should always look at what the umbrella company’s expenses policy is.

Umbrella contractors can usually claim expenses back on mileage, accommodation and things like training costs if they are incurred whilst doing the job.

Contractors should ensure that the umbrella company they choose complies with HMRC rules around umbrella expenses and steer clear of companies that claim to help the contractor save on tax by claiming a wide range of expenses as this is not the case.

Pension

Contractors should look at what the umbrella company’s pension arrangements are.

As an employer, the umbrella company must enrol the contractor into a pension scheme if they meet the following criteria:

  • They are aged between 22 and state pension age
  • They are working in the UK
  • They earn more than £10,000 each year

Compliance and reputation

Finally, the contractor should ensure that the umbrella company they choose has a solid reputation and is compliant with industry standards.

Although there is no official body that regulates umbrella companies, contractors can look out for any accreditations they may have, such as if they are members of the Freelancer and Contractor Services Association.

Ready to find an umbrella company that’s right for you?

Now you know how to compare umbrella companies, Umbrella Supermarket’s umbrella calculator can help you find your perfect fit in a matter of minutes.  Why not give it a go today?

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