Compare umbrella companies – a contractor's guide

While it’s important to compare umbrella companies on tangible points such as their margins and payment models, you must also consider the intangible benefits certain umbrella companies will bring to you.

Choosing an umbrella company can be a confusing process, and you will need to conduct thorough research into each umbrella to make sure it offers you the best deal. So, here’s how to compare umbrella companies - a contractor’s guide by Zeeshan Anwar at Contractor Umbrella:

1. Fixed versus percentage margin structure

Most umbrella companies will use either a fixed margin or percentage model to charge you for their services. You can usually expect to pay around £30 per week for fixed margins.

However, percentage margins can quickly mount up and you could end up spending a lot of money for more lucrative contracts. So, treat the percentage margin structure with caution.

Also, make sure you are quoted the gross margin, and not the net margin. A net margin includes your tax rate so these are more difficult to compare as different umbrella companies may use different tax rates when quoting a net margin.

In short: compare fixed gross margins.

2. Holiday allowance and sick leave

Some umbrella companies will pay an additional 12.07% to cover your annual leave. Others expect you to take your statutory annual leave.

Find out which model your umbrella company prefers to use and how this will be reflected in your final payslip.

An umbrella company is also legally bound to pay you statutory sick pay after four consecutive days away from work. Just get a doctor’s note.

In short: check the annual and sick leave policies.

3. Insurance cover

When it comes to insurance cover, umbrella companies are legally required to hold employer’s liability insurance. This will protect you if you become unwell or are injured at work.

Public liability insurance is not a legal requirement, but if you come into contact with the general public during your work, then it is worthwhile having this cover in place.

Professional indemnity insurance is also not required by law, but it gives the umbrella company protection against claims for damage caused by professional negligence or incompetence.

In short: you must have employer’s liability insurance. Public liability and professional indemnity insurance are both recommended.

4. Expenses dispensations

On the 6th April 2016, HMRC introduced legislation where every umbrella company contractor working is considered to be under supervision, direction or control, unless you can prove otherwise. This means you are restricted in what you can and cannot claim as expenses.

If an umbrella company claims they have ‘special’ expenses dispensation or allow you to claim for a range of expenses without any receipts, be very wary.

In short: ask your umbrella company how they deal with expenses.

5. IR35 and HMRC claims

Many umbrella companies claim to be “IR35 compliant” but this is irrelevant as you are taxed under norm PAYE conditions as a contractor.

Additionally, slogans such as “HMRC approved” don’t mean anything. In reality, this simply means HMRC has allowed an umbrella company to have a dispensation to simplify the way expenses are account for.

In short: look beyond any clever marketing catchphrases.

6. Extra costs

Double check any additional costs that you might incur with each umbrella company. For example, are there any joining or leaving fees? Are there any additional administration costs? Are you charged for same day payments?

In short: ask about additional costs.

7. Payment models

Find out how and when you will be paid when you compare umbrella companies. Here’s a quick checklist of questions to ask:

  • Once you submit your timesheet, how long will it take for the money to reach your account?
  • Will the umbrella company pay you to a weekly or monthly schedule?
  • Does the umbrella company offer BACS, CHAPS or Faster Payments transfers?
  • Does the umbrella company offer same day payments?
  • If so, do they charge an additional rate for same day payments?
  • Will the umbrella company ever hold back any fund for contingency reasons?
  • If you have a query about a payment, how does the umbrella company deal with such requests?

In short: make sure you understand how and when you will be paid.

8. Pensions

There are many tax advantages to paying into a pension and auto-enrolment means your umbrella company should offer you a pension scheme.

However, pension contributions must be made into the umbrella company group pension scheme. You cannot pay into a personal pension scheme to receive these tax benefits.

In short: ask if your umbrella company has a group pension scheme.

9. Online portals

You will need to submit regular timesheets to your umbrella company. As a result, an online portal where you can add this information is far easier than posting or faxing across paper-based timesheets.

Some umbrella companies offer additional features as part of their online presence, such as an online help desk and expenses management. Find out what level of online service you can expect.

In short: ask for a demo of an online portal.

10. Customer service and reputation

Some umbrella companies offer a guaranteed level of customer service. This is an important point as you want to feel secure and comfortable with your umbrella provider.

You may also want to find out a little more about each umbrella company. For example, how long have they been in business? How many contractors do they work with?

Additionally, you may want to ask the contractor community for any recommendations when you compare umbrella companies. You can ask for recommendations in the ContractorUK forum.

In short: ask for recommendations and check their customer service record.

In conclusion

It is advised to get a quote and list of services from a few different umbrella companies so that you can compare them. You can also find a list of umbrella companies in the ContractorUK Directory.

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Wednesday 11th May 2022
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Written by Zeeshan Anwar

Zeeshan Anwar, Head of Compliance at Dolan Accountancy - Having over 12 years of experience in legal and compliance, much of it within the contractor industry, Zeeshan brings valuable knowledge to the business in its efforts to stay compliant with the rules at all times. Whether it be AWR, the Intermediaries legislation or anything else compliance related, Zeeshan is on hand to help us navigate the minefield of legislation and red tape.
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