Umbrella companies are a great way for contractors to save time and maximise their take home pay through efficient use of allowances. They can also make the whole process of working for yourself much simpler. Umbrella companies can take care of the headaches that come with working for yourself like taxation and payroll.

However, as we’re well aware at Umbrella Broker, not all umbrella companies are the same. So, it’s important to choose the best option for your requirements. When comparing umbrella companies, there are several factors to consider.

Fees

Umbrella companies charge fees, which is a good place to start when comparing different providers. Firstly, they can differ in their fee structure. While some umbrella companies charged a fixed fee, others will take a percentage of your invoiced total.

Fees will typically be deducted from your pay like income tax or national insurance, before take-home pay is sent to you. It’s also a good idea to check how often fees are taken – whether it’s weekly, monthly or even less frequently. This may affect how well an umbrella company works for you.

When comparing umbrella fees, make sure you know what is included. Some providers may offer a low rate, only to charge more for added extras like employee benefits, joining fees or leaving fees. Nobody wants to be stuck with a certain umbrella company simply because they refuse to pay a hefty leaving fee.

Payment terms

How often will an umbrella company pay you?

Some companies offer monthly payments, while others operate on a weekly basis. You may even find umbrella companies that offer both options. Whatever the case, it’s important to work out what’s best for you and find an umbrella company that provides that solution.

It’s also worth checking whether an umbrella company will either pay you the full amount or hold any of your invoiced income back. Some companies will hold back a small amount as a contingency fund, which could be convenient for some contractors. However, if you simply want a provider that processes your invoices and sends you the money, a contingency fund might not be ideal.

Finally, when will you receive the money? Same-day payments are obviously the preferred option – but they won’t come as standard with some umbrellas. Some companies may even charge extra for faster payments, so it’s worth considering this when comparing your options.

Insurance

When comparing umbrella companies, it’s not always advisable to simply go for the lowest bidder. Consider what’s included in the cost – and how this adds value to you as a contractor.

A big part of this is the insurance they offer. Contractors typically need both public and employers’ liability insurance as well as professional indemnity insurance:

• Public liability insurance covers any risk to members of the public, and the cost of any resulting claims
• Employers’ liability insurance protects contractors against the cost of compensation from any employees
• Professional indemnity insurance covers contractors for any claims against their services or products

There are also a number of other insurance types, including personal accident, contents, buildings and cyber insurance. It’s worth factoring in these insurance policies – and the value they add – if they’re included as part of the umbrella services on offer.

Other benefits

Insurance aside, umbrella companies vary in terms of what benefits they offer to employees. A survey of nearly 900 contractors and freelancers found that over three quarters don’t have access to any form of sick pay, holiday pay or redundancy pay. The same survey found that sick pay is top of the list when it comes to the most valuable statutory benefits.

As long as they’re fully-compliant, all umbrella companies are obliged to offer the same benefits to their employees as any other full-time employee would be entitled to. That includes holiday pay, statutory sick pay, statutory maternity/paternity pay and a workplace pension.

That said, it’s worth comparing the specifics with each of these benefits. So, how many days of holiday pay are on offer, what is the process when it comes to claiming sick pay or maternity/paternity pay, and how much will you and the company be contributing to the pension scheme? Many of these will simply determined by statutory minimums, but it’s always good to check for a thorough comparison.

Compare history and experience

When your clients compare you to other contractors, experience and qualifications will play a big part in their decision. The same should be true when you compare umbrella companies.

Firstly, check their reviews. Personal recommendations are ideal, as they come from someone you trust. However, online umbrella company reviews can also be a good indication of a company’s reputation.

Ideally, you want an umbrella company that has experience with clients similar to yourself too. Some umbrella companies will operate in specific sectors, such as IT or construction.

As a minimum, you want your umbrella company to have a team of qualified accountants dealing with your tax and payroll. However, in some cases, umbrella companies will have additional qualifications or accreditations to provide that added trust factor.

Red flags

There are a few things to be wary of when you compare umbrella companies.

Firstly, if you’re working through an agency, you don’t always have to use their preferred suppliers. Many agencies will list specific umbrella companies as preferred suppliers – but it’s not always on merit. Compare them with other umbrella companies as normal, considering everything above.

Don’t be fooled by some of the phrases umbrella companies use to describe themselves either. Things like HMRC-approved and IR35 compliant shouldn’t be selling points, as HMRC doesn’t approve companies and IR35 doesn’t affect contractors who work through umbrella companies.

Finally, don’t be drawn in by unsubstantiated claims. There are plenty of umbrella companies claiming to offer 80% or more of your invoiced total as take-home pay. With tax, national insurance and fees, legitimate umbrella companies can’t offer these amounts.