Many agencies have preferred supplier relationships with some of the largest umbrella schemes, and they will encourage you to join one of their partner suppliers.
We recommend you take some time to consider your options, and research the rest of the market before signing up to a particular company. The main source for contracting-related information is clearly online, however it is a task in itself filtering out the marketing speak from genuinely useful content.
You could try some of the contractor comparison sites for background information on the leading umbrella companies, although we recommend you take any league table rankings with a pinch of salt, as they are easy to manipulate. Above all, the best place to get feedback about umbrella companies is from existing clients. You will soon find out which umbrellas are well-regarded by your peers, and which are best to avoid.
Umbrellas typically charge a fixed weekly or monthly fee. For an in-depth guide, read our comprehensive lowdown on umbrella fees and costs. Importantly, assuming you are using a legitimate UK-based PAYE umbrella, your take home pay should be the same regardless of the payroll operator you are using.
The only variable should be the margin fee charged by the umbrella. Before signing up, ask all of your prospective umbrella companies to provide you with a take home pay illustration. Companies with short term contractors or freelancers on their books stand to benefit from working with an umbrella company.
Invoice generation, contract management, and relevant payroll deductions are done for you, giving you the time to focus energy on other things. Managing expenses internally is challenging, even if you have an in-house payroll team.
If your organisation struggles to keep on top of expenses, and the logistical headache is eating into other areas of your business, then it could be a good time to bring an umbrella company on board.
The simple truth is that only a finite amount of resources exists within an organisation, and the decisions you make in how to allocate this translate directly to how the business functions.
Far preferable is time invested in growth and expansion, and money spent on the people, systems, and resources to help you achieve this. Outsourcing payroll services to an umbrella company gives you more freedom in directing energy and resources in your organisation. If your business struggles to stay compliant with all the tax legislation, then handing over the reins to an umbrella company could be a great move.
Our business depends on being fully compliant with every piece of legislation. Our business undergoes independent audits to ensure we remain compliant, and all this gives us complete confidence in our offering. However, implementing employment benefits in your organisation can be surprisingly complex. We also enrol everyone into our Nest pension scheme after three months, giving them the chance to make active investments in their future with each paycheck.
If you partner with us, your contractors become our employees, meaning they stand to enjoy all the employment benefits outlined above. Further to the above, working as a contractor or freelancer carries its own set of challenges when it comes to securing loans and mortgages.
If you want to continue working with staff on this informal basis, but want to ensure they have the same life opportunities as permanent employees, then this is another area that umbrella companies can help.
Our employees are able to demonstrate continuous employment status, thanks to us being their legal employer. Those are just seven reasons that your business might benefit from working with an umbrella company, all based on real challenges our clients faced before partnering with us. There are several factors to bear in mind when choosing an umbrella payroll company to work with, and we outline those in the next section.
How do you determine the company who will align best with your business, your goals, and the needs of your contractors? This covers everything from reducing the logistical challenges associated with running a business, to putting yourself in a position to offer more generous benefits to your employees.
The first thing you want to look at is the expertise on offer. Is your prospective umbrella company partner good at what they do? And do they have the credentials to back up the claims they make about their service? When placing responsibility for your administrative and tax affairs in the hands of an external organisation, you want to be sure they're safe hands.
Also, look into the people at the helm of the organisation, and what sort of internal philosophy and guiding ethics they bring. The best umbrella payroll companies continually improve their knowledge and expertise and are not content to ride the wave of past success. UK tax legislation is continually evolving, and your partner organisation should pride themselves on being at the forefront of the industry. You can also ask for evidence of compliance audits to ensure your umbrella company is compliant with all relevant legislation.
Further to the above, dig deep into customer testimonials and feedback. Build a solid understanding of whether customers -past and present - are happy with the service they received. Try to prioritise feedback on third-party websites, if possible, as this is less prone to being cherry-picked and usually provides a more genuine and balanced impression of the company.
Look for persistent negative comments as well as positive ones. This is an industry where prestige and experience count for a lot.
Choosing an umbrella company with a good track-record gives you the peace of mind that you're not being taken for a ride. Spending time on this step can pay dividends later. Realistically, reliability and ease of payment are likely to be one of your biggest priorities when choosing an umbrella company.
Does your prospective partner process payments quickly? Are there charges for same-day payments? Do testimonials from existing customers praise quick and easy payment, or do they begrudge slow payment accompanied by hassle? An understanding of how your umbrella company makes a payment, and what guarantees they make around this, should be one of the first things you look to establish.
Some umbrella companies offer enrolment in pension schemes, referral benefits, and myriad other perks. Others offer their employees access to industry-specific benefits, or to material that will help them as they progress through their career. This stems from a belief that work should be an investment in the future, as well as the present. Look to understand which perks - if any - your prospective umbrella company partner offers.
Some of these fees are levied on individual invoices, while others are associated with joining and leaving the partnership. While some companies may advertise high net take-home pay figures, you should be wary of these. Illegitimate companies may operate outside the law, and attempt to entice people in with the lure of a quick buck.
However tempting this may be, bear in mind that such practices are likely to result in HMRC investigation later down the line, and this can be incredibly costly. When deciding on an umbrella company, look at the gross weekly or monthly fee.
Also, look to understand whether they charge a flat fee or a percentage of the invoice value. The latter can be tempting initially, but can quickly become very expensive when your earnings increase. Think about long-term costs and decide whether anything feels too good to be true. If it feels like it then it probably is, and it's not worth taking unnecessary risks only to be out of pocket later on.
To offer statutory benefits like sick pay, holiday pay, parental pay and so on, an umbrella company must provide an overarching contract of employment. This contract formalises the professional relationship between agency, contractor, and umbrella company, and is the basis upon which everything is built. The IR35 legislation sets out differences in taxation between employees and limited company directors.
It distinguishes between legitimately self-employed contractors and 'disguised employees' - people whose relationship with an employer aligns more closely with traditional employees than outside contractors.
While this may not sound important, IR35 is designed to ensure that the relevant amount of tax is paid by employees and limited company directors, and it sets out the criteria defining each.
The legislation looks to prevent people from switching statuses for the sole purpose of enjoying greater tax efficiency; instead, defining your status by the nature and responsibilities of your role. If your contractors are found to be violating the rules, you or they may be placed under HMRC investigation, which can result in paying back all of the tax that should have been paid. It's simpler than it sounds, and it's vitally important that you're compliant. A good umbrella payroll company will help you to understand the IR35 and will be able to advise on compliance for yourself and your contractors under our employ.
If you ring up with a query or concern, are you going to spend an hour on hold before speaking with someone who has zero experience with your account? Or will you get through quickly to a dedicated account manager who knows the ins and outs of your situation? The latter is obviously far preferable, especially when it's your time and money on the line. In our technological world, you should expect an umbrella company to have intuitive and easily-accessible systems where you can check your timesheets and expenses at any time.
We pride ourselves on delivering high-quality umbrella payroll services to all of our customers. We pay on time, in full, every time. The next and final section runs through these costs, giving you the last piece of the decision-making puzzle. Like any professional service provider, umbrella payroll companies charge for their services and for the convenience they afford to their customer businesses.
If you're considering partnering with an umbrella payroll company, you've probably got questions about the fees and costs you can expect to pay.
Here's a top-level breakdown of fees that you should expect to pay when working with an umbrella company. Firstly, income tax and national insurance contributions will be deducted from your pay. This is in line with government legislation and goes straight to HMRC.
You'll also pay Employers National Insurance contributions as a contractor. Again, this goes straight to HMRC. Then, you're charged either a fixed rate or a percentage fee of your gross pay. Being charged to be employed may not seem like the best deal, to begin with, but when you consider the benefits, it starts to make sense. You're outsourcing the need to worry about tax or invoice generation.
Because the umbrella company takes payment before your income tax and NI are calculated, you can claim tax relief against these costs. Take some time deciding whether a fixed rate or percentage fee is best for your earning situation.
A percentage fee may be more appealing if your income falls within certain brackets, but bear in mind that costs under this pricing structure can escalate quickly as your earnings increase. An umbrella company is an organisation which employs contractors working on temporary assignments. Once you register, you will become an employee of the company, who will invoice your recruitment agency for the agreed rate and make all statutory deductions of tax and National Insurance on your behalf before paying your earnings to you.
You can find out more in our guide to umbrella companies. Because you will not be responsible for paying your own tax, there is no need to set up your own company or register for self-assessment and you will not usually need to employ an accountant. You may still be able to benefit from some tax relief on legitimate business expenses; however, these are restricted.
This means that you should take home as much of your pay as any other employee, minus the fee you pay to the umbrella company for dealing with the admin. As a contractor, you may be seeking a simple way to get paid, and an umbrella company reduces the pressure on you to deal with a significant amount of admin work. By opting for employment you can focus on your assignment and reduce the stress associated with working for yourself.
Many contractors have also turned to umbrella companies as an alternative due to the IR35 private sector reforms now postponed until April After the reforms, the responsibility for determining IR35 status will fall to the end hirer, and for contractors whose assignment is deemed inside, they will no longer have access to all of the tax benefits associated with running a limited company.
You can find more information about the reforms in our blog. Some umbrella companies claim to offer more than others, and whilst there are variations between the promises they make, some of them will be too good to be true. Common claims that are made by less scrupulous companies include:. It is important to check the credentials of any umbrella company before you enter into an agreement with them. At Nixon Williams, you can seamlessly switch from your limited company to an umbrella solution with our Platinum and Professional packages.
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