Choosing an Umbrella Company

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At last count, there were 4.2m self-employed workers in the UK.

And as the number of freelancers, contractors and sole traders has risen over the years, so too has the number of umbrella companies to choose from.

If you’re new to this way of working or are thinking of changing umbrellas, it can be difficult to know where to start or what it is that makes one umbrella company more attractive than another.

To help you make an informed decision, we’ve looked at the key things to focus on when comparing umbrella companies.

Check if they’re a genuine employer

Compliant umbrella companies provide contractors with what’s called an overarching contract of employment. This gives you access to all the rights and benefits associated with permanent workers, including sick pay, holiday pay, and maternity/paternity pay.

If you join a company that doesn’t offer a contract of employment, you could find that you’ll miss out on what you’re entitled to. It’s therefore essential to check whether the umbrella is a genuine employer and will provide you with everything you deserve.

Take-home pay

When considering an umbrella company, it’s crucial that you choose one that’s above board and fully compliant. Make the mistake of operating through a tax avoidance scheme and you could be left with a huge tax bill.

One way of spotting a potentially non-compliant provider is very high take-home pay after tax. For example, it’s highly unlikely that any provider that promises take-home earnings upwards of 80% is operating lawfully. This could be damaging for you further down the line.

Check their payment and expenses policy

It’s also a good idea to thoroughly research an umbrella company’s payment processing system. Most compliant providers will run several payrolls each day, ensuring you get your money as quickly as possible. The last thing you need after a hard day’s work is to waste time chasing payments.

What’s more, you should also be aware of the umbrella’s expenses system. Compliant providers will always advise you to keep hold of your receipts for auditing purposes and will only accept legitimate claims. While other firms may let you put through claims that are not valid, and spin it as a way for you to keep more of your money, this practice could land you in trouble if HMRC comes calling.

The types of business costs and expenses that can be claimed and reimbursed are dependent on the type of assignment you’re working on and whether it’s subject to supervision, direction or control (SDC).

Margin structure

Umbrella companies retain a margin for the services they provide. This is usually retained each time pay is processed and will vary depending on which umbrella company you choose. It is important that you are aware of the margin being retained and this should be displayed clearly on your pay statement.

Compliance

For freelancers and contractors, tax compliance can be a confusing arena – but one that must be taken seriously. Compliant umbrella companies are there to do the hard work for you, making the correct tax deductions so that you don’t have to worry.

In recent years, there has been a rise in non-compliant tax avoidance schemes claiming to be umbrella companies. They will often claim to be ‘HMRC accredited’, ‘HMRC approved’ or pay you through ‘tax-free loans’. However, HMRC never offers its stamp of approval and tax must be paid on all income earned above the Personal Allowance.

It’s essential, then, that you choose a trusted and fully compliant umbrella company. We run through how you can do this in our guide to the importance of choosing a compliant umbrella company.

Reputation

When choosing an umbrella company, you should also focus on reputation. By this, we mean what others say about it – not what the umbrella company says about itself. One way to do this is by comparing customer reviews – whether on TrustPilot or Google – from other contractors, which will give you a firm idea of the quality of service each company provides. If you are working through a recruitment agency it is likely they have dealt with many umbrella companies and spent a significant amount of time on due diligence, your recruitment agency may be able to recommend an umbrella company to you.

Setup and service

The time it takes to start working through an umbrella company is important. After all, the faster the onboarding process the quicker you can start working and earning money. Along with checking this, be sure to find out how often you’ll be paid – critical to personal budgeting.

Service levels should also be high on your agenda. As touched on above, you can check trust scores for an idea of customer service. However, it’s also worth getting clarity on whether you’ll be assigned an account manager, how easy (or difficult) it is to get issues resolved, along with any service level agreements.

Are they on a preferred supplier list?

Some recruitment companies operate a preferred supplier list (PSL), consisting of a number of different providers that the agency trusts to look after its contractors. When researching umbrella companies, it’s a good idea to check if your recruiter operates a PSL and choose a provider from there.

Serving the agile workforce

Granted, it might take a little time and effort, but it’s worth doing your homework to find out which umbrella companies meet the criteria listed above. Ultimately, choosing the right umbrella company can be the difference between compliance and non-compliance.