There are several factors a contractor must consider when choosing which umbrella company to work with. From the services they offer, the extra perks they have available to the fees they charge.
Understandably, the umbrella company’s fees play a large role in determining whether the contractor will decide to work with them. After all, the fees you are charged have a direct impact on your take home pay.
It’s understandable that every contractor wants to get a good deal. However, going with the cheapest umbrella company isn’t always the best option. After all, sometimes a higher fee means access to tax breaks and credits that outweigh extra costs incurred.
Likewise, sometimes the cheapest option does not cover the level of service required by the contractor, meaning they have to fork out extra for the services they need. That’s why it’s so important that every contractor understands how umbrella company fees work and what they cover, in order to get the best deal for them.
To help, Umbrella Broker have put together this comprehensive guide to umbrella company fees – from how much you will pay, when you will pay them and what you will receive in return.
How much should you pay in umbrella company fees?
Firstly, let’s look at how much you can expect to pay in contractor fees. After all, this is what will impact your all-important take home pay.
It’s important to state that there is no uniform answer to this question, with every umbrella company charging different fees.
As a general rule, however, contractors can expect to pay upwards of £15 per week for the minimal level of service. As we have mentioned, generally, the more services offered by the umbrella company, the higher the fee.
What impacts umbrella company fees?
As discussed, the main factor impacting umbrella company fees usually depends on the level of service and perks they are offering the contractor.
This can include:
- Benefits and perks such as help with childcare credits, higher pension contributions to increased holiday pay
- Same day payments for your work
- Extra levels of insurance: although most contractors are required to have professional indemnity insurance, public liability insurance and employer liability insurance as minimum requirements, sometimes contractors require extra levels of insurance based on the type of contract they are carrying out. Therefore, some umbrella companies will charge higher fees for increased levels of insurance cover.
That’s what impacts umbrella company fees, but how are they charged to the contractor?
There are two main ways that umbrella companies charge their fees.
The first option is to charge a fixed fee. This is when the company charges a fixed weekly or monthly fee which is taken out of the contractor’s income before it is processed for PAYE.
As a fixed fee, the amount that the contractor pays will not change, despite what the contractor earns from contract to contract.
On the other hand, the other way that umbrella companies can charge their fees is as a percentage fee. Here, the fee is charged as a percentage of the contractor’s invoice value.
So, if you have bagged a higher value contract, you will begin to pay more in umbrella fees due to the fact that you are earning more.
The downside to this option is that you are paying more for exactly the same services which usually makes it the least preferred option for contractors.
As well as fixed fees and percentage fees, umbrella company fees can also be charged as either net or gross fees.
When it comes to gross fees, the contractor is charged before tax relief has been applied. On the other hand, net fees include tax relief. Again, this can have a big impact on what you pay, meaning it’s important to look out for.
Are there any additional costs to look out for?
That is the basics of how umbrella companies charge their fees, how much you can expect to pay and what levels of service this typically covers. However, umbrella companies can charge additional costs that contractors should be aware of.
These can include:
- Sign-up costs: some companies charge a one-off up-front fee when you join them.
- Exit costs: likewise, some companies will charge a one-off fee when the contractor leaves them.
- Admin costs: sometimes umbrella companies charge the contractor for additional admin tasks not included in their basic level of service. This can include anything from processing expenses to invoices. The company will always let you know these services are not included in your monthly fee.
How to compare umbrella company fees
Clearly, there are lots of factors to take into account when it comes to umbrella company fees.
However, we know that every contractor wants to get the best deal, paying a fair fee for their required level of service. That’s why we’ve made it quick and easy to compare umbrella fees.
With our handy umbrella company calculator, we show you what fees you will pay under several different companies, making it easy to compare and contrast providers.
After all, as many umbrella companies do not share their fees online, instead asking the contractor to fill in a form to receive a quote, we wanted to make it as easy as possible for every contractor to compare fees and get a great deal.
