Thousands of contractors across the UK choose to operate through an umbrella company as an easy, hassle-free way of working. Furthermore, following reforms to IR35 legislation that are coming into action from April 2021, many of the 170,000 limited company contractors out there will now be making the move to umbrella in order to avoid getting caught out by IR35.
If you are now considering contracting through an umbrella company, you will want to know how to find the best umbrella company for you. After all, it is a big decision that shouldn’t be taken lightly. Contractors want to know that they will be working with a company they can trust and that has their best interests at heart.
To help, Umbrella Broker have put together this handy guide on how to find the best umbrella company in just 4 simple steps, so you can rest assured you’re making the right move.
1. Make sure an umbrella company is the right option for you
The very first thing that every contractor should do is ensure that an umbrella company is the best option for them.
That’s where looking at how an umbrella company works and what the benefits are of using one will come in handy.
Unlike limited company contractors who contract through their own company, umbrella contractors will become an employee of their chosen provider.
As an employee of the umbrella company, the contractor therefore receives a range of benefits, including:
- Statutory rights: this includes maternity/paternity leave, sick pay, holiday pay and a workplace pension
- PAYE tax contributions: as an employee of the umbrella company the contractor will also have their tax and National Insurance obligations taken care for them which will be paid through the PAYE system
- Insurance: the umbrella company will also cover contractors under Umbrella Companies Professional Liability and Professional Indemnity Insurance, meaning their compulsory insurance requirements are taken care of
- Admin and paperwork: finally, the umbrella company will also take care of the business side of contracting, sorting out invoicing the client and chasing paymennts as well as any paperwork and admin required
Once you are sure that this is the right move for you, you can now take the next steps to find the best umbrella company.
2. Dip Deep Into Their Background
It’s always a good idea to do your research when choosing which umbrella company to work with to ensure they are trustworthy and have a solid reputation.
Although most umbrella companies are trustworthy and have the contractor’s best interests at heart, just as in any industry, unfortunately some don’t.
That’s why every contractor should dig a little deeper to find out more about the company. A quick Google search will help you find company reviews that can help to inform your decision. Here, you can also find further key information such as how long the company have been operating, how many contractors they work with and their credit rating.
It is also worth checking whether the umbrella company is registered with the Freelancer and Contractor Services Association, which shows that their operations, policies and processes meet strict standards.
3. Check the umbrella company’s fees
When choosing which umbrella company to work with it is important to look at their service fees.
Every umbrella company charges fees in exchange for the services they provide contractors. However, fees differ from company to company, meaning it’s important to do your research.
There are two main ways that umbrella companies can charge their fees that will have a big impact on how much you end up paying. They can be charged either as fixed rate of percentage fees.
A fixed rate is a set amount taken from the contractor’s pay which is usually charged weekly, fortnightly or monthly. A percentage fee on the other hand is when the umbrella company charges a higher fee if the contractor’s earnings increase. For this reason, most contractors find the fixed fee option more favourable as it means they will continue paying the same amount if their earnings increase.
4. What insurance cover does the umbrella company offer?
Another key factor to account for when choosing which umbrella company to work with is what insurance cover they offer.
As we’ve already mentioned, as the umbrella company is your employer, they are legally required to cover the contractor with employer’s liability insurance, which protects you should you fall ill or become injured on the job.
Many umbrella companies also offer professional indemnity and public liability insurance which, although not legal requirements, are usually a requirement of the contract. This is important to consider as you will wind up forking out for these out of your own pocket if they are not provided by the umbrella company.
Finally, many contracts require specific kinds of insurance. If this is the case for you, it’s important to check whether your chosen umbrella company provides them. This is especially true if you work in a niche sector and need specific types of insurance.
