When reaching the end of your time in education - whether that’s school, college, university or even having served an apprenticeship - there are some choices to make about your very first career move.
Do you apply for a permanent job, start climbing the career ladder and enjoy the benefits and conveniences that come with employment?
Should you strike out on your own, become your own boss and venture into the world of self-employment from the word go?
Or might you find that working through an umbrella company, which offers the best aspects of employment and self-employment, ticks all the right boxes?
With National Careers Week in full swing, and millions of students at a crossroads weighing up their options, here at Parasol we wanted to help you decide if working through an umbrella company is right for you.
What is an umbrella company?
An umbrella company is a business that sits between you and the company you provide your services to or the recruitment agency who has found you work.
When working through an umbrella company, you become its employee and will receive a contract of employment - just like any other employee.
The umbrella will invoice the company you work for. From this invoice the umbrella company will pay Employers National Insurance contributions, apprentice levy and will retain a margin. They will then process your gross pay and take care of any tax you owe HMRC. As an employee you will be entitled to a range of employment benefits, such as holiday, sick, maternity or paternity pay.
If you do decide to work through an umbrella company it's essential that you are provided with a Key Information Document by your recruitment agency, this will help you understand all of the deductions that will be made from the rate provided to you by the agency. Your umbrella company will also be happy to talk you through this.
Why might I want to work through an umbrella company?
Where would you like us to start? Let’s run through some of the obvious reasons why so many people are drawn to working through an umbrella company.
Enjoy the very best of both worlds
As an employee of an umbrella company, you benefit from the simplicity of employment but also retain the flexibility and control that freelancers and contractors value so highly. In other words, this way of working offers you the best of both worlds.
But how? Well, the umbrella will organise your tax payments and, as like we mentioned above, offer you employment rights, just like a traditional employee.
The beauty of working through an umbrella company also means that you’ll be engaged on temporary assignments only, similar to how a freelancer works on a project by project basis.
A stepping stone to self-employment
Because of this, umbrella companies are considered the perfect stepping stone to working full time self-employed. It allows you to dip your toe into the world of self-employment.
An umbrella company will manage the difficult and stressful things typically associated with self-employment (namely tax), while there’s the added benefit of zero start up costs or fees that freelancers incur when running their business.
This means all you need to do is focus on the job in hand and make sure you submit a timesheet so you get paid.
No IR35 problems
You might have heard about IR35, which has been in the news a lot recently. IR35 is a piece of legislation that aims to stop freelancers and contractors from working as something HMRC call a ‘disguised employee’.
Disguised employment occurs when someone working through their own limited company provides their services to a client in the same way that an employee would.
HMRC’s argument is that if a person works in a way similar to an employee, they should be taxed like an employee, not as a self-employed person, who is able to operate with a little more tax efficiency.
The good news is that this complicated tax legislation doesn’t apply to umbrella company employees, because you become an employee of the umbrella. In contrast, freelancers and contractors that incorporate their own limited company need to pay very close attention to it.
There are plenty of other reasons why hundreds of thousands of people choose to work through umbrella companies today - from the availability of temporary assignments to the flexibility it offers people and businesses.
So as you plot your path, remember that it’s not simply a toss up between permanent employment or self-employment. There’s another option - working through an umbrella company - which is certainly worth thinking about.
To find out more information about working through an umbrella company, simply request a callback and a member of the team will be in touch.