The number of contractors working through umbrella companies has grown rapidly in recent times, especially since the government introduced reforms to IR35 legislation which meant that thousands of limited company contractors operating on a self-employed basis would be worse off.

If you are one of the many contractors that have made this decision, Umbrella Broker has put together this guide outlining our top tips on using an umbrella company for the first time, so you can get off to the best start.

Tip 1 – Get to know how umbrella companies work

The first step to using an umbrella company for the first time is to fully understand how they work. After all, this will be a new way of working for the contractor, so it’s important that you can get to grips with how an umbrella company operates.

Once the contractor signs up with the umbrella company they become an employee of their chosen provider and are put on their payroll.

The contractor works with their chosen client as usual but will submit their timesheets to the umbrella company. The umbrella company will invoice the client on the contractor’s behalf, collect the fee and then process it through the PAYE system.

This means that the correct levels of tax and National Insurance are deducted from the contractor’s fee before it is paid to them in line with current UK tax bands. This means no tricky and time consuming tax calculations required from the contractor themselves.

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Tip 2 – Get to know your statutory rights

The great news for umbrella company contractors is that they are eligible to receive statutory rights. These include everything from paid holiday leave, paid sick leave, a workplace pension and paid maternity and paternity leave.

Therefore, when you sign up to an umbrella company it’s important to familiarise yourself with the statutory benefits you qualify for.

These include:

Umbrella company holiday pay

Every umbrella company contractor is entitled to 28 days’ or 5.6 weeks holiday pay per year or the pro-rata equivalent if you work part-time.

You can work out how much holiday pay you will be entitled to by taking your gross table pay and multiplying it by 12.07%.

Contractors can receive their holiday pay either as accrued pay which is where the umbrella company keeps the holiday pay aside until the contractor takes time off. The other way it can be paid is through a fixed method.

Here, the contractor receives their holiday pay every time they are paid, meaning they’re always kept up to date with what they are entitled to.

Umbrella company sick pay

Umbrella company contractors are also entitled to sick pay. Statutory sick pay in the UK is paid at a rate of £95.85 each week meaning this is what contractors will receive if they are too ill to work. Contractors are able to claim this for a maximum of 28 weeks each year.

Umbrella company maternity and paternity leave

Contractors operating through an umbrella company can also claim statutory maternity or paternity pay.

With maternity pay, for the first 6 weeks contractors will get 90% of their average weekly pay. After this, they will receive £151.97 or 90% of their weekly pay for the next 33 weeks, depending on which amount is lowest.

With paternity pay, contractors can receive 90% of their average weekly pay of £151.97 each week for 1-2 weeks’, depending on which amount is lowest.

Workplace pension

Finally, umbrella company contractors must also legally be enrolled onto a workplace pension scheme.

Read more about umbrella company statutory rights in our useful guide.

Tip 3 – Work with a company you can trust

Another tip for using an umbrella company for the first time is to find one you know you can trust.

Although most umbrella companies can be trusted, unfortunately, some cannot. This means it is important for the contractor to check that the umbrella company they choose is reputable and legitimate.

For example, some umbrella companies will claim that they can assist you in paying less tax. They might do this through only processing part of your salary through their payroll, or will offer to pay the contractor through a loan, credit or investment scheme as these avenues aren’t subject to income tax.

This is classified as tax avoidance and will end up with the contractor facing penalties if caught. After all, it is the contractor’s responsibility and not the umbrella company’s to ensure they are fulfilling their tax obligations.

Thankfully, at Umbrella Broker you can rest assured that we only ever work with umbrella companies we know we can trust, so you can guarantee you will find a reputable company that has your best interests at heart.

Find out more about how to spot an HMRC approved umbrella company in our handy guide.

Tip 4 – Use Umbrella Broker’s umbrella company calculator

An umbrella company calculator makes it easy for contractors to find an umbrella company that’s just right for them.

All you need to do is enter your details and preferences and click go. Next, we will show you a list of umbrella companies best suited to your contracting needs.

We will show you what services and benefits you will get from each umbrella company, as well as how much you will pay in umbrella fees, pension contributions and how much you will take home at the end of each month. In fact, we even show you what your payslip will look like under each company, so you can make the most informed decision for you.

Our handy umbrella calculator takes just 2 minutes to use and will save you many hours of searching the web looking for the perfect provider. To see how it can benefit you try it out for yourself today.

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