How Many Umbrella Companies Should I Compare?

It’s perhaps unsurprising, then, that there has been a concurrent surge in the number of umbrella companies offering their services to contractors in Britain in the last decade. As well as providing the same kind of statutory benefits and job security that the rest of the employed populace enjoys, umbrella companies can sidestep troublesome IR35 legislation and handle the tax obligations of self-employed people, making them an attractive proposition to many.

Today, there are literally hundreds of umbrella companies available to choose from – and many predictably use similarly salesy propaganda to market themselves to prospective clients. With so much choice, it can be difficult to know where to begin, which is why it’s imperative to compare umbrella companies before entering into a contract with any of them. But how many should you include in your search?

Narrowing the field

While you ideally want to conduct as thorough a search as possible, the practicality of vetting hundreds of different companies simply isn’t feasible. It’s therefore a good idea to narrow down the parameters to filter out non-starters and cowboy operations which aren’t worth wasting your time on. Unfortunately, not all umbrella companies are created equally and some use exaggerative marketing spin and unprofessional practices to increase customer outreach and maximise profit margins.

So what should you be looking for to separate the wheat from the chaff? There are a few red flags which should serve as immediate notice to exclude a company from your hunt, including the following:

• Fees as a percentage. There are two different ways in which an umbrella company can charge for their services: with a fixed fee, or as a percentage of your earnings. It makes prudent sense to only countenance those who offer the former, since the latter will take a bigger chunk of your profits as your business grows, without providing any additional services for the pleasure.
• Net fees. To compare umbrella companies in terms of the costs they charge you, look for the gross fee (which means the price before tax and national insurance contributions (NICs) have been taken into account). Net fees (the price including your tax and NICs deductions) are confusing, since different companies will use a different standard to make their calculations. Keep things simple with gross comparisons at all times.
• Insurance. All umbrella companies are legally obliged to carry employer’s liability insurance, so one which doesn’t can be immediately discounted. Other forms of insurance such as professional indemnity and public liability are not strictly obligatory, though both are very common and may well be necessary for you depending upon your profession. Work out what your requirements are and delete those who do not offer it as applicable.
• Marketing spin. Be wary of umbrella companies who advertise themselves as “IR35 compliant” and “HMRC-approved”, since these are essentially empty terms which do not mean a whole lot. Contractors working with an umbrella company are deemed as employees in the eyes of HMRC, meaning they bypass IR35 and are treated in exactly the same way as the rest of the British workforce. Though not an immediate indicator of untrustworthiness, such marketing does highlight that the company might be willing to use deceptive wording to gain more custom.

Once you’ve filtered out some of the less reputable and reliable companies by applying these parameters, you should be left with a more manageable field from which to make your selection.

Ideally, you’ll be able to narrow this down to between two and five candidates by asking for recommendations. However, when receiving referrals, it’s important they come from a legitimate source – not a recruitment agency, blogger or website who may be receiving a commission, but an actual contractor who has used their services.

Compare and contrast

Now that you’ve picked out a handful of companies from which you intend to make your final choice, it’s time to compare and contrast. Umbrella firms generally differ from each other in two main ways – their policy on fees and payments, and the level of customer service they provide. Of course, there are specifics you’ll want to look out for, but they generally fall under either of those two categories.

In order to compare umbrella companies in terms of their financial parameters, it’s best to use a comparison tool like the one offered on our site. This will allow you to see, at a glance, how different firms stack up against each other in terms of the amount they charge you for their services and how they intend to renumerate you for yours. In particular, you should pay close attention to:

• Gross fee. As mentioned above, you’ll want to look at how much they plan to charge you per week or month before any tax considerations are made.
• Additional fees. Do you have to pay extra to join or leave the company? If you require same-day payment, does that cost an additional sum? Find out.
• Payment structure. Will you be paid weekly or monthly? Is that important to you? Do they employ BACS, CHAPS or other payment schemes?
• Query policy. If a dispute arises between you and a client, how will the umbrella company handle it?
• Timesheet submission. Does the umbrella company offer an online portal for you to submit timesheets and access invoices? The ability to do so may save huge amounts of time and effort compared to an offline alternative.
• Holiday allowance. Some firms expect you take all of your statutory leave each year; others will pay you an additional percentage (normally 12.07%) to compensate for it. Discover which way the companies in question operate.

When it comes to comparing companies in terms of their customer service standards, it’s a little trickier to get a handle on how well they operate. The best advice here is to read reviews from those who’ve already dealt with them, check their website to see if they have received any awards or accreditations and perhaps even interact with them yourself to get a feel for how responsive and user-friendly they are.

Making a decision

Having amassed all of that information, you should be in an excellent position to make that all-important decision on which one is best-placed to serve your needs. Take your time, assess all the options available to you and make your choice.

At Umbrella Supermarket, we aim to make it easier for contractors to get the best deal with our umbrella company comparison site. Simply enter a few details to get no-obligation quotes from a number of trusted providers.