Operating through an umbrella company has become an increasingly popular route for contractors in recent times.
It’s no surprise, considering the range of benefits they offer the contractor, such as statutory benefits, a salary, insurance cover and taking on time consuming business tasks.
However, in exchange for these services and benefits, the umbrella company takes a fee.
Naturally, every contractor will want to know how much the umbrella company takes in fees, as this will directly impact their take home pay.
In this guide, Umbrella Broker explain how much contractors will pay in umbrella company costs, so you can ensure that you are getting a fair deal.
Why do Umbrella Companies charge fees?
Before we look at how much umbrella company fees cost, let’s start by looking at why providers charge the contractor a fee.
As we have already mentioned, the umbrella company provides the contractor with a range of services and benefits.
In exchange for these, the umbrella company charges a fee.
What are the benefits of contracting through an umbrella company?
One of the reasons that umbrella companies are so popular is that they provide a range of services to the contractor which make the contractor’s life a whole lot easier.
Rather than operating as a self-employed contractor through a limited company, an umbrella company contractor becomes an employee of the umbrella company. This means that the contractor qualifies for statutory rights. These include a workplace pension, maternity and paternity leave, holiday pay and sick pay.
As the contractor’s employer, the umbrella company also takes care of the contractor’s fee. By invoicing and collecting the fee from the client on the contractor’s behalf, the umbrella company processes the amount through the PAYE tax system and pays the contractor the remainder.
Not only does this mean that the contractor doesn’t have to worry about spending time sending invoices and chasing late payments, it also means that their tax and National Insurance obligations are taken care of for them.
After all, self-assessment tax returns can be difficult and time intensive, which is why many umbrella contractors find this to be one of the main advantages to operating through an umbrella provider.
What’s more, the umbrella company also takes care of other financial and business tasks, including processing expenses and dealing with paperwork.
It’s easy to see why thousands of contractors have made the move to umbrella. But, an important consideration when making the decision is how much you will have to pay in umbrella fees.
How much does an Umbrella Company take in fees?
On average, contractors will usually pay around £20-30 per week to the umbrella company.
The great thing is that the industry has remained highly competitive, meaning fees have remained relatively low.
However, fees will vary from company to company and will also depend on the level of services you require from the company. After all, if you are a contractor that needs only the basic levels of service, you can expect to pay the minimum. If you need lots more help with things like childcare credits or additional levels of insurance, you will have to pay more for this.
How do Umbrella Company fees work?
That’s how much you should expect to pay, now let’s look at how you will pay umbrella company fees.
After all, there are two different ways that the umbrella fee can be charged which can have an impact on how much you end up paying.
The first way umbrella fees are charged is as a fixed fee.
As it sounds, this is when the umbrella company charges their fee as a set amount. Lets say this was £80 per month. At the end of the month, the umbrella company would deduct the £80 from the contractor’s salary before it was processed for tax and paid to them.
Most contractors prefer to pay umbrella fees as a set fees as it means they won’t have to start paying more in fees if the value of their contract increases.
This is the case with percentage fees.
Here, the umbrella company charges their fee as a percentage of the contractor’s invoice value. So, if you began to charge more for your time, you would end up paying more to the umbrella company, in exchange for the same level of service.
Umbrella companies can also charge their fees as either gross or net fees.
With gross fees, the fee is charged before tax relief is applied. When it comes to net fees, the fee is charged after tax relief has been charged.
Again, this can make a big difference to how much you end up paying in umbrella company costs, so it’s always important to look at how the umbrella company charges their fees.
Now you know how umbrella costs work, and how much umbrella companies take in fees, if you have decided that umbrella is the right way to go, it’s time to take the next steps with Umbrella Broker.
