In exchange for the services they provide the contractor, every umbrella company charges a fee.
However, when it comes to comparing umbrella company fees there are several factors to account for, such as how the company charges their fees, what they provide in exchange and if there are any extra costs to account for.
The umbrella company fee is deducted from the contractor’s take-home pay, so naturally every contractor wants to ensure they get a fair deal.
To help, in this guide Umbrella Broker outline everything you need to know about umbrella fees, so you can find the best deal for you.
Why do umbrella companies charge fees?
Umbrella companies provide contractors with a range of services and benefits which they charge a fee for in return.
At a minimum, most umbrella company fees cover the following:
- The umbrella company will employ the contractor and put them on their payroll. The umbrella company pays the contractor a salary and deducts their tax and National Insurance through the PAYE system. This means no complex tax calculations for contractors as this is all taken care of by the company.
- As an employee of the company, the contractor will receive statutory benefits. This includes sick pay, holiday pay, maternity or paternity leave and a workplace pension.
- Unlike a limited company contractor who has to invoice the client and chase payments, the umbrella company will take care of this on the contractor’s behalf.
- The umbrella company will cover the contractor with a basic level of insurance. This typically covers professional indemnity insurance, public liability insurance and employer liability insurance as a minimum.
Many umbrella companies also offer a range of additional perks to contractors which you can expect to pay more for. These include:
- Extra holiday pay
- Same-day payments
- Processing expenses
- Extra help with things such as childcare credits
- A range of other admin tasks
How much are umbrella fees?
The first question many contractors will ask when considering operating through an umbrella company is how much they will pay in umbrella fees.
After all, the umbrella fee is taken from your take home pay, having a direct impact on your salary, so clearly every contractor wants to get a good deal.
Although every umbrella company is different, generally a contractor should expect to pay upwards of £15 per week.
If, however, you are taking advantage of extra services and benefits from the company, you should expect to pay more.
The great thing about umbrella company fees is that they are considered a legitimate business expenses by HMRC and are therefore are deducted from your pay before tax.
How does an umbrella company charge fees?
Now you know how much you can expect to pay in umbrella company fees, let’s look at how umbrella companies can charge their fees.
There are two main ways a company will charge their fees, through fixed fees or percentage fees. These can have a significant impact on how much you end up paying, so it’s always important to check how the umbrella will charge you before making a decision.
Fixed fees are a set amount taken from the contractor on either a weekly or monthly basis. Here, the fee is taken from the contractor’s income before it is processes for PAYE. The amount will remain the same every time.
On the other hand, percentage fees are worked out and charged as a percentage of the contractor’s invoice value. So, should you start a new contract that pays more, you will pay more to the umbrella company in fees.
For this reason, this is often the least preferred way of paying as, should the contractor begin to earn more, they will pay more to the umbrella company who will continue to offer the same level of service.
Another thing to look out for is whether the company charges net fees or gross fees.
When it comes to gross fees, the contractor will be charged their fee before tax relief has been applied. Net fees, however, will be charged after tax relief has been charged.
This can have a big impact on your take home pay so it’s always important to check how the umbrella company charges their fees. For example, if an umbrella company offers a net fee quote using the higher tax rate, this can be misleading if it doesn’t apply to you.
Are there any hidden costs to look out for?
As well as the regular umbrella fee, it is also important to look out for other one-off costs umbrella companies sometimes may charge.
These include things like:
- One time sign-up fees
- One time exit fees
- Charges for additional services such as same day payments or admin tasks
Although these are one-off payments, they can add up so it’s always important to read the small print to identify when you will be charged extra, so you don’t encounter any surprises along the way.
Now you know everything there is to learn about umbrella company fees, from how much you should be paying to how companies charge their fees, the next step is to compare umbrella companies to find the best deal for you.
