When it comes to umbrella company fees, every contractor wants to get a good deal. After all, umbrella company fees are deducted straight from your take-home pay, so naturally contractors want to ensure they get a fair deal.
To help contractors, in today’s guide Umbrella Broker outline everything you should know about umbrella fees, from how they are charged to what they cover, so every contractor knows what they should be paying to get the best deal for them.
Umbrella company fees: How much should contractors pay?
The first question many contractors ask when considering using the services of an umbrella company is how much they will pay in umbrella fees. After all, this has a direct impact on your take-home pay, so you need to ensure you are getting a fair deal.
Although umbrella fees vary from company to company, generally, contractors can expect to pay upwards of £15 per week.
Of course, however, if the umbrella company provides you with extra services and benefits, contractors should expect to pay more in return. If you only require minimal service, however, you will pay the minimal rate.
What do umbrella fees cover?
At a minimum, most umbrella company fees cover the following:
- The umbrella company employs the contractor and putting them on their payroll. In turn, the company pays the contractor a regular salary and deducts their tax and National Insurance through the PAYE system.
- The umbrella company offers the contractor a range of statutory benefits, including sick pay, holiday pay, maternity or paternity leave and a workplace pension.
- The umbrella company invoices the client on the contractor’s behalf, chasing any late payments
- The umbrella company provides the contractor with the basic level of insurance required to carry out the contract. This typically covers professional indemnity insurance, public liability insurance and employer liability insurance as a minimum.
However, most umbrella companies also offer a range of additional perks to contractors. In most cases, the umbrella company will charge more if a contractor chooses any of these additional benefits.
These can include:
- Same-day payments
- Extra levels of insurance
- Processing business expenses
- Extra holiday pay
- Help with things like childcare credits
- Help with other admin tasks
Fixed fees vs Percentage fees
Now you know roughly how much umbrella fees should cost and what they should cover, you should also understand the difference between fixed fees and percentage fees.
Umbrella companies will either charge their fees as fixed or percentage fees. How the company charges its fees can have a big impact on how much you end up paying, so it’s important to look out for.
- Fixed fees: as they sound, this is when the umbrella company charges the contractor a fixed fee, whether this is on a weekly or monthly basis. This is taken off the contractor’s income before it is processed for PAYE.
- Percentage fees: here, on the other hand, the percentage fees is worked out and charged as a percentage of the contractor’s invoice value. This is usually the worst option for contractors who can end up paying higher fees merely if their contractor rate increases whilst receiving the same level of service in return.
For this reason, most contractors prefer the fixed fee option, meaning they won’t have to fork out more of their hard-earned cash merely if they begin to earn more.
Net fees vs Gross fees
Another thing to look out for when it comes to contractor fees is whether they are charged as net fees or gross fees:
- Gross fees: here, the contractor will be charged their fee before tax relief has been applied
- Net fees: however, with net fees, the contractor will be charged the fee after tax relief has been charged
When comparing umbrella company fees, it’s important to look out for whether they are charged as gross or net fees as it can have a big impact on what you will pay. For example, if an umbrella company offers a net fee quote using the highest tax rate, this can be misleading if it doesn’t apply to you.
Are there any other costs?
Contractors should always look out for any other hidden costs umbrella companies may charge as again, this can have a direct impact on your wallet.
Some hidden costs to look out for include:
- Sign-up fees: some umbrella companies charge a one-off joining fee
- Exit fees: likewise, umbrella companies can also charge a one-off fee for leaving the company
- Charges for additional benefits or admin tasks: it’s important to look at whether the umbrella company charges extra costs for additional benefits like same-day payments or admin tasks such as processing expenses, as this can have a direct impact on how much you end up paying
It’s always worth taking the time to read through the small print to understand exactly what the umbrella company fee covers, and whether you will incur any additional costs for extra services to avoid any nasty surprises along the way.
Now you know how umbrella fees work and what you should be paying, the next step is to compare umbrella companies to get the best deal for you.
