For many contractors, working through an umbrella company can save time, effort and energy. After all, the umbrella company takes care of the contractor’s tax, insurance, payroll, admin and ensures they are exempt from IR35, meaning the contractor has more time to focus on the contract they are working on.

Whether you are new to contracting, or are a limited company contractor looking to make the move to an umbrella company, you will need to know what to look out for when choosing which provider to work with.

To help, in this guide Umbrella Broker outlines things every contractor should consider when comparing umbrella companies, to help you find the perfect fit.

1. Decide whether an Umbrella Company is right for you

There are several ways a contractor can operate, whether that is through setting up their own limited company and working on a self-employed basis, using a PAYE agency or an umbrella company.

That’s why it’s important that contractors weigh up their options to decide whether an umbrella company is the right one for you.

Many contractors find the umbrella company route easy and hassle-free.

After all, limited company contractors have to set up and run their own businesses, are responsible for invoicing the client and chasing any late payments, they must pay tax through self-assessment, which can often be complex and time-consuming and must ensure that they do not get caught out by IR35 legislation.

For this reason, an umbrella company is often considered as an easy alternative for contractors.

The umbrella company takes care of:

• Invoicing the client on the contractor’s behalf
• Covering the contractor with the required insurance
• Putting the contractor on their payroll
• Deducting the correct levels of tax and National Insurance from the contractor’s salary through the PAYE system
• Giving the contractor statutory benefits including holiday pay, sick pay, a workplace pension and maternity/paternity leave
• Processing expenses on the contractor’s behalf
• Taking on paperwork and admin

After comparing umbrella company vs limited company and deciding that an umbrella company is right for you, the next step is to compare companies based on a range of criteria.

2. Look at Umbrella Company fees

When comparing umbrella companies, one key consideration is how much the company charges in fees.

Every umbrella company charges a fee in exchange for the range of services they provide the contractor, however, fees will vary from company to company, meaning it’s important to consider how much you will pay.

Umbrella Broker makes it easy for contractors to compare umbrella company fees with our handy contractor calculator.

Simply input your details and contractor preferences and we will generate a list of the best-suited umbrella companies for you, showing you how much each will charge in fees.

Contractors can therefore compare umbrella company fees quickly and easily, to help make the decision easier.

3. What are the payment terms?

Another consideration that contractors must account for when comparing umbrella companies is their payment terms.

After all, contractors work hard and therefore want to ensure that payments from the umbrella company will be quick and a hassle-free process.

Contractors should check how often the umbrella company makes payment runs as this will impact how quickly the contractor can get paid.

Umbrella companies should make payment runs several times a week which means that the contractor will be paid quickly once they have submitted their timesheet.

It is also important to avoid any umbrella company that makes it harder to get paid by requiring the contractor to submit paper rather than electronic timesheets, or those that require timesheets to go through an approval process before they pay the contractor.

4. Are there additional costs?

Contractors should also look out for any additional costs charged by the provider when comparing umbrella companies.

After all, it is common for umbrella companies to charge additional fees such as:

• Sign-up fees when the contractor joins the company
• Exit fees when the contractor leaves the company
• Additional costs for processing expenses
• Additional costs for other admin tasks
• Additional costs for same-day payments

Therefore, it is important to compare umbrella companies based on whether they charge these additional costs as this can end up costing the contractor.

5. How does holiday pay work?

One of the main advantages to the umbrella company route is that umbrella contractors qualify for statutory benefits which include holiday pay as well as sick pay and maternity or paternity leave.

However, the way that holiday pay works varies from company to company, so contractors should compare this between providers to ensure they are happy with how they are receiving what they are entitled to.

An umbrella company can either use the accrual method, through which they keep the contractor’s holiday pay aside until they take the time off.

The other way contractors can be paid is through the fixed method, through which they receive holiday pay each time they are paid by the umbrella company. This means they are always up to date with what they are owed.

6. Check insurance cover

Contractors should also consider what insurance the company offers the contractor.

Every umbrella company must legally have employers’ liability insurance which protects the contractors should they fall ill or injured on the job. 

Many umbrella companies also cover the contractor with professional indemnity insurance and public liability insurance, however, these aren’t legal requirements so it’s always important to check.