Finding the best umbrella company can be a confusing process for contractors. The reason being that most umbrellas simply aren’t clear about their impact on their client’s net take home.

Some umbrella companies might offer enhanced benefits that outweigh their increased fees, while others might be clunky in the way that they process a timesheet. Despite appearing cheap at first glance, they end up taking up more of your charge out time.

If you’re earning £250 a day, for example, an umbrella that costs you just 15 minutes of extra work a week to get paid is actually going to cost you an extra £9 per week in lost time. That’s a big difference in a market where prices tend to vary by £5-10 per week across the board.

Why it’s important to find the best umbrella company

One of the best things about contracting is that you should get more money for your time. Alongside the freedom of being self-employed, you can choose your own hourly rate based on your skills, experience and overall value to clients.

But with that freedom and higher pay comes the responsibility to pay your own taxes. This can often be a time consuming and complex process, so for the most part contractors opt to invoice through umbrella companies that process their earnings through the pay-as-you-earn scheme.

Working via PAYE through an umbrella company, your income will be subject to tax and national insurance just like any normal employee. Your umbrella company will deduct this for you before sending you a weekly or monthly wage and payslip.

But taxes aren’t the only thing that affects your net take home pay. Your choice of umbrella company could also impact how much you take home overall. In the past, this was solely based on the fee they charged. However, it now depends on a wider range of factors.

Read on as we discuss how different umbrella companies can add to or reduce your pay – and how to choose the best one for you.

Umbrella company fees

In exchange for taking care of your payroll and taxation, umbrella companies charge a weekly or monthly fee to contractors. This is deducted from your income along with tax and national insurance contributions. In the past, the fee charged by umbrella companies was the only way to tell them apart.

So, choosing the best umbrella company for you simply meant choosing the one with the lowest fee. That way, you could minimise the deductions and maximise your take home pay.

How things have changed

Things aren’t so simple any more – but that doesn’t mean they aren’t better. In recent years, umbrella companies have started to introduce a number of employee benefits. Things like insurance, paid holidays and statutory sick pay are offered by a number of umbrella companies, which make it less straightforward choosing which umbrella company is best for you.

When you’re comparing umbrella companies, it’s still possible to base the decision solely on their fee. That’s exactly what many contractors still do. This will give you the maximum take home pay. The problem? It won’t give you the maximum disposable income (i.e. how much money you’re left with at the end of each month).

The value of umbrella benefits

Paid holidays and insurance are both ‘valuable’ benefits to contractors. That said, many contractors don’t see them as financially valuable. So, let’s put things into context…

One contractor earns £30,000 and misses out on an extra £1,000 by having time off work. They pay £1,000 a year in umbrella company fees and £2,000 for insurance. In total, they take home £27,000.

Another contractor earns £31,000 with paid holidays. They pay £2,000 a year in umbrella company fees, which covers their insurance. Their total take home pay amounts to £29,000.

This is a simplified example, which doesn’t take tax, national insurance and other expenses into account. But it gives you a rough idea of how benefits can have a financial impact on your disposable income.

Choosing the best umbrella company for you

With this in mind, when finding the best umbrella company you should look at your disposable income rather than just your net take home pay. Admittedly, that can be more difficult when most umbrella companies and umbrella company calculators work out your income based on their fee and any tax deductions alone.

It’s worth considering each benefit offered by umbrella companies, whether it could help you and what value it holds…

Sick pay

The majority of contractors have no arrangements to cover pay for sickness. If they’re temporarily out of work, for whatever reason, they can find themselves struggling to make ends meet. By offering sick pay, umbrella companies provide a safety net should the worst happen.

This is particularly useful for contractors with physically demanding roles. Roofers, for instance, would be unable to work with a back injury, so it’s important to be covered.

Holiday pay

Working constantly with no breaks is bad for both productivity and your mental wellbeing. That’s why, in the UK, there is a statutory minimum of 28 days paid leave each year. There’s no such luxury for self-employed workers, however, who have to fund their breaks themselves.

Umbrella companies can provide this benefit, making it more practical to balance contracting with your life outside of work.

Marriage Allowance

The marriage allowance allows married couples or those in a civil partnership to transfer up to 10% of their income tax personal allowance between one another. So, if one partner isn’t using all of their tax-free allowance, they can transfer it to the higher earning partner.

In 2018-19, the tax-free allowance is set at £11,850, meaning up to £1,185 can be transferred. This translates to a tax cut of up to £238, providing a much-needed boost to your take home pay each year. It’s important to factor this in when comparing umbrella companies.

Child Benefit

Another thing you should consider is childcare. From October 2018, contractors can get a tax exemption on some of their childcare costs, essentially reducing the cost of childcare by 20%. It can be used to the value of £500 per child, every three months.

That’s a total of £2,000 a year – and a potential saving of £400 on tax, per child. Clearly, this has a significant impact on your take home pay.


There are three kinds of insurance which umbrella companies may offer to contractors:

  • Public liability
  • Professional indemnity
  • Employers liability

Employers’ liability insurance is required by law if you employ anyone to assist with your work. You can subtract the cost of this off any umbrella company quote as you will need to pay for it yourself if they don’t include it.

While not legally obligatory, public liability and professional indemnity insurance can prove highly valuable to contractors. Professional indemnity insurance covers legal costs and expenses from any claims against you and your services, while public liability covers you specifically against claims by the public in public areas.

How we can help

Umbrella Broker provide a simple, no nonsense umbrella company calculator that allows you to work out your take home pay along with any benefits offered by each umbrella company.

With our help, you can find the best deal for you based on how much you’re left with at the end of each month, rather than the umbrella company’s fee alone.