If you are new to contracting or an established contractor that has yet to work through an umbrella company, then you may be wondering what it is all about because. However, there is a very good chance that you will have to work through an umbrella company at some point in your contracting career.
This blog helps to explain a little more about what to expect, including some of the terminology for you to be familiar with and some practical tips to help you make the most of it.
What is an Umbrella Company?
Umbrella Companies are businesses that take on agency, contractor, or temporary employees as their own employees, providing them with an employment contract. Essentially, they act as an intermediary between the agency worker and the end client (or recruitment agency). The umbrella company is paid by the client or agency to handle all aspects of the payroll including PAYE costs such as income tax and national insurance, and they then pay the worker.
How do I know that an Umbrella Company is right for me?
Currently there is no government regulation of umbrella companies and whilst most are reputable, there are companies out there who are not necessarily acting in the best interests of either the end clients or the workers. When looking to work with an umbrella, ensure that they have accreditation from either FCSA or Professional Passport and that they are members of those at least one of those professional bodies. This will ensure that you find an umbrella who meets their standards and will act in your best interests.
Is your Umbrella Company Compliant?
Acting as employers means that Umbrella companies need to maintain compliance to employment and finance legislation because they are dealing with pay, tax, national insurance, and other legal obligations. Non-compliant umbrellas are those who offer business models that pay you a minimum salary topped up with a non-taxable element such as a grant or a loan to avoid you having to pay your full amount of tax. These “disguised renumeration” schemes are not compliant with tax laws and as such you will not be paying sufficient tax to HMRC. Worse still you may not realise this, because you won’t see an increase in your pay – instead the umbrella could be using this money to improve its own margins – ultimately at your cost.
How Much Should It Cost?
Umbrella Services don’t come for free. Most umbrella companies charge around £20 per worker per week. These “margins” are factored into the rate of the umbrella company and are usually cost neutral to the workers as they are covered in the rate paid by the agency or end client, but beware, there can be additional costs over and above the standard margin – so do your homework and read the small print before you agree to any extra charges.
Preferred Supplier List
Many recruitment agencies operate with Preferred Supplier Lists (PSLs). To maintain their own compliance to financial regulations, they will only work with compliant umbrella companies and as such will hold a recommended list of umbrellas that a contractor can work with.
For more information about PSL’s why not read our guide which explains in more detail how and why they are put in place by agencies.
Acting as employers means that umbrella companies are also responsible for things such as holiday pay. Different umbrella companies deal with this in different ways, and you need to understand how it is calculated so that you don’t lose any of it – if for instance you were to leave your employment, or you were to not use all your holiday.
How Pendragon Umbrella Can Help
Whether you are new to contracting or a career contractor, our team is experience and professional and we can help you through every step of becoming an employee from your very first salary and beyond.
If you are ready to find out more, why not get in touch and one of our dedicated team of Contractor Relationship Advisors will call you back and get you started.