When choosing which umbrella company to work with, umbrella company fees will clearly have a big impact on the decision-making process. After all, every contractor wants to ensure they are getting the best deal and good value for money.
When it comes to umbrella company fees, contractors will need to ensure they do their research. After all, every umbrella company is different. Some companies offer minimal service. Whereas others offer extra perks and benefits, so it’s important to look at what each one is offering in return for their fee.
That’s why it’s important to weigh up your own needs as a contractor to find the best deal for you.
In this post, Umbrella Broker share their ultimate guide to umbrella company fees. From how much contractors should pay. What services the company should offer to any hidden costs for contractors to look out for.
What are umbrella company fees?
Just like with any business, an umbrella company charges a contractor fees in exchange for their services.
The umbrella company hires the contractor as an employee, puts them on their payroll, gives them access to statutory rights and a range of other perks and benefits – from expense filing, IR35 compliance to helping with childcare credits, in exchange for a fee.
Fees vary from company to company and very much depend on the level of service and benefits offered.
How much are umbrella company fees?
Although fees vary between companies, in general contractors can expect to pay anything from £25 per week or around £80 each month upwards. However, as we’ve mentioned, this will depend on the level of service being offered and often contractors will pay extra for added perks.
That’s why it’s so important to check what the umbrella company offers before working with them. After all, no contractor wants to be paying too much for services they don’t use. Whilst at the same time no contractor wants to pay out of their own pocket when they realise a service they require is not covered by the company.
How do umbrella companies charge their fees?
Umbrella companies charge their fees either as fixed or percentage fees.
Although the majority of companies will charge fixed fees, it is important to look out for as the way the company charges their fees can drastically impact how much you pay.
With a fixed fee, the amount the contractor pays will not change. With a percentage fee on the other hand, if the contractor begins to earn more, the fee will increase in line with their earnings. That means the contractor receives the same level of service but pays more because they earn more.
For this reason, fixed fees are generally the preferred option by contractors.
Another factor to look out for is whether the company charge net or gross fees as this can also have a big impact on what you will pay.
With gross fees, the contractor will be charged before tax relief has been applied. With net fees, the contractor is charged after tax relief has been charged. For example, if an umbrella company offers a net fee quote using the higher tax rate, this can be misleading and inaccurate if this tax band doesn’t apply to you.
It is therefore usually best to compare only gross fees in order to get an accurate representation of what you will be paying.
Are there any hidden costs?
Some umbrella companies will have hidden costs that are not reflected in their quoted fee. It is important to look out for these costs as they can have an impact on the overall fee you will be paying.
When it comes to identifying hidden costs, contractors should look out for the following:
- Sign up fees: umbrella companies sometimes charge a sign-up fee paid by the contractor when they join the company
- Same day payments: if you are a contractor that would prefer same day payments it is important to look out for whether the company will charge more for providing this benefit
- Admin tasks: some umbrella companies will charge extra fees for certain admin tasks such as processing expenses or timesheets
- Extra benefits: likewise, some companies will charge the contractor for extra benefits and perks such as increased insurance cover
- Exit fees: some companies will charge the contractor a fee if they decide to leave the company
Is there anything else contractors should look out for when it comes to umbrella fees?
When it comes to umbrella company fees, some contractors can find themselves being lured in with promises of more tax-efficient payment schemes, believing this can save them money.
These illegitimate companies will claim to be able to boost the contractor’s take home pay but in actual fact they are illegal and are being cracked down on by HMRC.
To identify these companies, contractors should look out for those that will:
- Process just a portion of the contractor’s salary through the PAYE system in order to reduce the amount that the contractor is taxed. This is illegal and although it is the umbrella company that is processing the payment, it is the contractor that will end up in trouble with HMRC as it is their responsibility to ensure they are fulfilling their tax obligations.
- Companies that tell contractors they can keep between 80-95% of their income and be tax compliant as this is not the case.
- Pay the contractor through an offshore structure. Again this is illegitimate and classified as tax avoidance.
- Pay the contractor through a capital advance or share ownership scheme.
For more information read this handy guide by the government on how to spot and avoid these umbrella companies.
