Umbrella company costs vary, depending on the provider. With that in mind it’s important to compare umbrella company costs and what you get for your money.
Naturally, you want to get the best deal for you and your specific requirements. However, that doesn’t necessarily mean going for the lowest cost.
There are good umbrella companies and then there are bad ones. A low cost umbrella company might not necessarily offer the best deal. For example: a very cheap umbrella might actually not perform the basic umbrella company functions like paying employers national insurance at all (instead simply processing your funds).
On the other hand, you don’t want to pay over the odds for an all-inclusive service when you only need the basics. At Umbrella Broker, we provide a full breakdown of each umbrella company’s costs along with the services they offer. So, you can quickly compare fees and what you get in return.
Keep reading to learn how to check the costs of different umbrella companies and choose the best provider for you.
How do umbrella company costs work?
Typically, umbrella companies fall into one of two categories when it comes to charging fees to contractors.
Most operate on a weekly or monthly fee basis. They charge a fixed fee for their services, which is taken out of your invoiced income before it is processed for PAYE.
Some umbrella companies will instead take a proportion of the invoices they raise. This is a fixed percentage taken from all income you process through your umbrella. In some cases, this fee is capped. So, even if you’re enjoying a particularly fruitful month, you wouldn’t pay over a pre-agreed maximum sum.
What are the typical costs of an umbrella company?
Umbrella companies that charge a fixed fee generally provide their services for upwards of £15 a week or £60 a month. However, this is a rough guide, and there’s plenty of variation in the market. Why? In short, it’s down to what’s on offer, such as:
Same day payments
Whether you’re just starting out or you’re well into the swing of things, cash flow is vital to contractors. That’s why some umbrella companies offer same day payments. You may find those who do will charge a bit more, while some companies will offer this as an added extra.
Insurance
Most contractors need professional indemnity insurance, public liability insurance and employer liability insurance as a minimum. For some, this will be an added cost that can’t be avoided. However, provided your umbrella is employing you this will form part of the service your umbrella provides you with.
Many umbrella companies provide low level insurance cover for their employees. This can include the basics listed above and extra insurance like contents, building, cyber or personal accident cover. Others will offer high levels of cover in order to entice contractors to use them.
These extras can cause your umbrella company costs to rise. But it might be worth paying more if it means you don’t need to take the extra insurance out yourself. Remember, Umbrella Companies benefit from economies of scale. As a result, they can provide insurance policies for less than it would cost to take one out yourself.
Extra perks
The cost of your umbrella company might be affected by the benefits on offer. To be clear, this doesn’t refer to statutory benefits like holiday pay, sick pay, maternity/paternity pay, workplace pension and expenses. These are the basic employee benefits that any compliant umbrella company is legally obliged to provide (even though some still sell them as an added benefit).
However, they might provide additional employee perks which allow them to charge more. For example, they could offer more than the statutory minimum holiday pay or a higher pension contribution. Some umbrella companies also offer discount schemes, so their employees can save money on other contractor essentials.
It’s also important to remember that very few umbrella companies will process your payroll in light of additional tax allowances, instead preferring to allow the only variable to be your tax code.
In reality as an employee of an umbrella company you are entitled to marriage allowance, childcare credits and a host of other tax breaks that help lower your tax bill. As such it’s important to ask if these additional calculations will be carried out.
After all, for an extra £5 a week, you might want to choose an umbrella that helps you take home £100s of pounds more.
Extra costs with umbrella companies
When comparing prices for umbrella companies, it’s important to check for any added costs. Some umbrella companies will add extra fees onto the weekly or monthly fee, which could cost you more when you least expect it. These can include:
- Joining fee – Some umbrella companies will charge an up-front fee to join.
- Leaving fee – You can also be charged should you choose to stop working with your umbrella company.
- Same day payments – As mentioned, some umbrellas treat same day payments as an added extra and will charge for them as such.
- Admin fees – You can be charged costs for ‘extra’ admin work too, such as processing your expenses.
Net fees vs gross fees
As well as being worked out as a monthly or weekly rate, umbrella company costs can be presented as either net or gross fees. Put simply, a gross fee is the fee before tax relief, while net fees will include tax relief.
So, because they charge the fee before processing your invoices as taxable income, you will be relieved of a certain amount of tax on that amount – technically reducing it. If you were being taxed at the highest ‘additional rate’ of tax, this could reduce your fees by 45%.
Of course, not all contractors will pay the same level of tax, so net fees can be misleading. For example, an umbrella company might offer a net fee which is subject to 45% taxation. However, this could be lower than the actual fee you pay on the basic rate of taxation.
In short, contractors should always look for gross fees when comparing umbrella companies.
What is best for you?
When you’re comparing umbrella company costs, the main question is: what works best for you? In truth, there is no one-size-fits-all solution. It’s best to consider your circumstances, income and your needs as a contractor – and find an umbrella that fits this to give you the best deal.
