A Contractor’s Guide to Comparing Umbrella Companies
are a contractor, you have to be aware that umbrella companies are created to eliminate nearly all administration
and management linked to a limited company. With this, umbrella companies are a
popular option for some contractors. In the case of short-term contractors,
umbrella companies facilitate the easy formation of a company and then
arranging it to be dissolved.
Choosing the right umbrella company is a confusing process especially for newcomers. You need to conduct comprehensive research into each umbrella to ensure that you get the best deal. To get started, here’s how to Compare The Umbrella:
Check the company’s charging structure
You have to know that there are two charging structures used by most umbrella companies – fixed and percentage. For fixed fees, you will be expected to pay at least £30 every week. If the umbrella company prefers percentage, the fees can quickly add up without you knowing – you could end up spending a lot of money for lucrative contracts.
With this, you have to tread carefully if the company requires percentage fee. As a contractor, what you can do is to ensure that you are quoted the gross fee and not the net fee. The net fee will include your tax rate, which is difficult when quoting because each company uses different tax rates.
Determine the holiday allowance and even sick leave
There are umbrella companies that are willing to pay an additional 12% to cover your annual leave. For some, they will require you to take statutory annual leave. When selecting an umbrella company, you should determine which model it prefers to utilise and how it will be reflected in your final payslip. Keep in mind that an umbrella company is bound to pay you statutory sick pay after 4 consecutive days away from work – you just have to get a doctor’s note.
See if they hold insurance
The umbrella company is required to hold an employer’s liability insurance. This is good because it can protect you when you become ill or injured at work. It is also recommended if the company offers public liability and professional indemnity insurance.
Look beyond “IR35 compliant” claims
Many umbrella companies these days claim that they are IR35 compliant. IR35 is a legislation that is created to stop the employees from fraudulently claiming to be contractors or “disguised employees” for tax benefits. If caught, the “disguised employees” need to pay income tax and NICs (National Insurance Contributions) like regular employees. You have to verify if the company is IR35 compliant but you will still be taxed under PAYE (Pay as You Earn) conditions as a contractor.
Double check additional costs
As a contractor, you should double check if there are additional costs that you will incur. You should determine if the company requires a joining and leaving fee. You should also know if the company charges additional administration costs.
Determine how and when you will be paid
It is crucial to know when and how an umbrella company will pay you. After submitting your timesheet, ask how long it will take for the money to be transferred and reflected into your account. Also, find out if the umbrella company will pay you a weekly or monthly basis.