Opting to work through an umbrella company is a popular route for thousands of contractors in the UK. Not only does an umbrella company make for hassle-free contracting, they also allow contractors to avoid getting caught out by dreaded IR35 legislation.
Whether you are looking to switch from PAYE or are a limited company contractor now considering making the leap to umbrella in light of IR35 reforms that came into play of April this year, Umbrella Broker are here to help you find the best umbrella company with our 5 top tips.
Tip 1: Ensure umbrella is the best way to go
Before you start to look for the best umbrella company you will need to first ensure that an umbrella company is the best option for you and your contracting career.
Every contractor should take a close look at what an umbrella company is and how one works, to make sure it is the right move.
So, how does an umbrella company work?
Unlike limited company contractors who work through their own company, umbrella contractors become employees of their chosen umbrella provider.
In return, the umbrella company offers the contractor a range of benefits that limited company contractors do not receive.
Firstly, the contractor will receive statutory rights including maternity/paternity leave, sick pay, holiday pay and a workplace pension.
So, should the contractor fall ill, or wishes to take a holiday, these costs are covered by the umbrella company and not out of the contractor’s own pocket.
Secondly, as an employee of the company, the contractor is paid a salary, from which tax and National Insurance are calculated and deducted using the PAYE system. This means no tricky tax calculations for the contractor to tackle themselves.
What’s more, 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.
Finally, the umbrella company will also take care of the business side contracting, including invoicing the client, chasing late payments, as well as any paperwork and admin.
If this sounds good and you have decided that umbrella is the way to go, the next step is to find the best umbrella company for you.
Tip 2: Compare umbrella company fees
Every umbrella company charges fees in exchange of the services they provide contractors, however fees differ from company to company, meaning it’s important to do your research.
Make sure you look at the services provided in exchange for the fee, looking out for any hidden costs such as extra charges in return for things like processing expenses or receiving same-day payments.
Next, look at how the umbrella company charges their fees.
Umbrella companies can charge their fees in 2 different ways, either as fixed fees or percentage fees. This can have a big impact on how much you end up paying meaning it’s important to consider.
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.
Tip 3: Check insurance cover
Another thing to look out for when finding the best umbrella company is what insurance cover each company offers.
We’ve mentioned that every umbrella company is legally required to cover the contractor with employer’s liability insurance, which protects you should you fall ill or become injured on the job.
However, many umbrella companies also offer professional indemnity and public liability insurance. Although these aren’t legal requirements, they are usually required for the contract, so if the umbrella company doesn’t offer these then you will end up paying for them out of your own pocket.
What’s more, if the contract requires specific kinds of insurance it’s important to check whether your chosen umbrella company provides them.
Tip 4: Do your research on the company’s reputation
Finally, it’s important to do your research to ensure you choose an umbrella company that is trustworthy and reputable.
Look at for things such as company reviews, how long they have been operating, how many contractors they have worked with, their credit rating and any additional accreditations they have.
Contractors might find it useful to check whether the umbrella company is registered with the Freelancer and Contractor Services Association, which shows that their operations, policies and processes meet strict standards.
