How to get more out of your contractor umbrella company

Since changes to the IR35 rules were implemented in April 2021, many contractors have switched from contracting through their limited companies to employment with umbrella companies. For those who are new to umbrella company employment, here’s how you can get the most out of your umbrella company, writes Damon Cochrane, chief operations officer at Orange Genie Group.

Decide (carefully) on the right umbrella company

To get the most out of umbrella employment, you first need to choose a good umbrella company from the outset!

All compliant umbrellas will pay you roughly the same, so quoted take-home pay is not the best way to compare umbrella companies.

Look instead for an umbrella that demonstrates compliance, is competent, respected, and will suit your needs in terms of service levels and other benefits.

In terms of compliance, accreditation with a professional body, such as FCSA, is generally considered to be a good place to start.  

Once you’re subsequently in touch with a brolly who you’re warming up to, bear in mind that while the take-home pay number itself is not the best way to decide (especially, in our experience, if the brolly is very vocal about its take-home pay percentage), it’s still a good idea to get a pay illustration. Do this before you join the umbrella!

The pay illustration should clearly explain what you can expect to be paid, and the umbrella should be happy to answer any questions you have about it, so you’ll know what to expect right from the off.

It also makes sense for contractors to ensure your chosen umbrella company can work with all your recruitment agencies. Again, check this in advance of signing up by asking the umbrella company which agency ‘Preferred Supplier Lists’ they are included on.

Remember, it’s all about employment

The most important thing to remember about working with your umbrella company, is that they are your employer!

Your employment status will not be in any way ambiguous, and it isn’t a grey area. Your umbrella company employs you, supplies your services to the agency or client, and pays you as their employee.

But be aware -- as a contractor, you are still responsible for sourcing your own work, meaning you retain the freedom and flexibility that many get into contracting for in the first place.

This move to employment is often quite a large adjustment for contractors who are used to operating through their own limited company. But the upside is that it means you have all the rights, protections and benefits enjoyed by all other conventional employees.

Be on top of how umbrella employment interacts with IR35

IR35 is about employment status, and as you are an employee of your umbrella company, your IR35 status (if you previously contracted through your own limited company), is no longer an issue.

This is one reason, but a compelling reason, why the use of umbrella companies has become more common following IR35 reform. As your employer, the umbrella is responsible for calculating your pay correctly and making all necessary employment tax payments to HMRC.

Go continuous

To get the most out of umbrella contracting, we believe it is best to use just one umbrella company for all your assignments, rather than switching when you move from one client or agency to another. The advantage of keeping consistent is that it gives you a single, continuous period of employment rather than a series of shorter ones. Aside from saving you the hassle of signing up over and over again, being with just one umbrella can simplify your tax position. It can also have advantages for your credit rating, references and your employment rights.

Know your pension rights

If you’re aged between 22 and state pension age, and earning £10,000 or more, your umbrella company must enrol you onto their workplace pension scheme. The minimum contribution is 8% of qualifying earnings, at least 3% of which must be an employer contribution.

If you don’t want to join, you are allowed to opt out -- but only after you’ve been enrolled. You’ll usually be enrolled after you’ve been with your umbrella for three months, unless you ask them to enrol you early.

You may be able to contribute to your choice of pension through ‘salary sacrifice,’ which will reduce the cost of your pension contributions by making them before deductions for tax and National Insurance. However, salary sacrifice is not a requirement and will depend on your umbrella’s internal policy. If this pensions model is of interest to you, it’s best to check with the umbrella ahead of committing to the company.

Ask on statutory payments

As your employer, your umbrella company has to pay you all appropriate statutory payments, such as sick pay and maternity/paternity pay. Your entitlement will depend on your circumstances and in some cases the length of your employment.

To get the most out of these rights, you have to understand what they are and how to claim them. For example, you could ask your umbrella company for their ‘sick pay policy,’ and then just make sure you follow it if you have to take time off sick. This will ensure that you’re paid the right amount if you become unwell.

Pin down holiday pay

Because you’re employed by your umbrella company, you’re also entitled to paid holiday. The standard statutory entitlement is 5.6 weeks including bank holidays, but the amount you accrue will depend on how much you work.

Depending on your umbrella company, your holiday pay might be automatically saved up until you ask for it, or you might have the choice to have it paid to you in each payment.

To get the best from your holiday pay, it’s usually better to use it to cover actual time off -- if this is possible. Make sure you understand your umbrella’s internal policy on holiday pay (following a BBC investigation which found some umbrellas weren’t operating them fairly). Do that, and you’ll know what’s happening to your holiday pay and how you can claim it when you want it.

Ensure your brolly sticks to its contractual obligations

Your agency or client will have a contractual relationship with your umbrella company, rather than with you. Where there are issues with a contract, your umbrella company will work with the agency or client to resolve them.

As experts (hopefully) in employing people, a well-chosen compliant umbrella company will work with agencies and end-clients to ensure high standards of compliance throughout the supply chain.

Your umbrella also has a ‘duty of care’ as your employer, and a specific legal responsibility for your health and safety at work. Again, if there are health and safety issues on a client site, they should be reported to your umbrella, so the umbrella can ensure they are resolved for you.

Find out about any extras

The things we’ve mentioned so far cover what an umbrella company is required to offer you by law, but it’s reasonable to expect more than the bare minimum from your employer!

Some umbrella companies offer additional benefits to their employees, ranging from simple commercial incentives, to benefits and services that could significantly improve your contracting life.

It’s well worth finding out what, if anything, your umbrella offers, how those benefits work and how you can access them. Rightly or wrongly, it may take a little effort or planning to make use of them, but you could be surprised at the positive difference they make.