One of the most significant decisions contractors face in their careers is whether to work independently as self-employed individuals or through their own limited company, or to use the services of an umbrella company.
If you have decided that an umbrella company is the easiest, most hassle-free way to contract, the next step is to find a perfect provider.
Whether you're new to contracting or simply looking to switch to an umbrella company, you may be wondering whether all umbrella companies are the same and, if not, what you need to look out for when choosing the right one for you.
To help, Umbrella Search has put together this guide, breaking down the ways umbrella companies are similar and where they are different so you can make an informed decision in line with your career goals.
Are all umbrella companies the same?
Let’s start by looking at the ways in which umbrella companies are similar.
Most umbrella companies operate in a similar way, offering a set of services to the contractor designed to make the contractor’s life easier.
However, some umbrella companies will offer additional services and benefits, so if these are a requirement for you it will be an important thing to look out for when comparing companies.
First, let’s look at the ways umbrella companies are the same:
Pay and Statutory benefits
When contractors sign up with an umbrella company, the provider will become their employer.
This means that the umbrella company will collect the contractor’s fee directly from the client and in turn pay the contractor a salary, dealing with all aspects of payroll, deducting tax and National Insurance.
In addition to handling all elements of pay for the contractor, this also means that the contractor is entitled to statutory benefits. This includes sick pay, holiday pay and maternity/paternity leave.
Admin and paperwork
Umbrella companies will take on certain administrative tasks on behalf of the contractor, saving you more of your precious time.
Such tasks include processing timesheets, handling invoices, processing expenses, and any other administrative and HR tasks that may crop up.
IR35 compliance
Another key similarity between umbrella companies is that by enrolling with one, every contractor will be exempt from IR35. As the umbrella company employs the contractor, it means that they have no worries about being outside or inside IR35, and can get on with the hard work at hand.
Differences between umbrella companies
That’s how umbrella companies are similar, now let’s take a look at how they differ.
Umbrella fees
Every umbrella company charges a fee in return for the level of services they provide the contractor. However, the way that the company charges fees can differ.
Umbrella companies can either charge fees as fixed fees or percentage fees. This can impact how much you end up paying, so it’s important to know the difference.
With a fixed fee, the umbrella company will charge a fixed amount, usually monthly. With a percentage fee, the umbrella company will take a percentage of your earnings as their fee. With this option, it means that the more you earn, the more you will pay in fees. For this reason, a fixed fee will be preferable for contractors that want to minimise costs.
Additional services and costs
Although all umbrella companies offer a minimum level of services, such as paying the contractor a salary to dealing with aspects of administration, others will offer additional services and benefits for an extra cost.
For example, an umbrella company may offer help and advice on pensions, the option for same-day payments, or help with things like childcare tax credits.
Insurance cover
Although every umbrella company will offer a basic level of insurance cover for the contractor which is a legal requirement for them to carry out the contract, types and levels of insurance will vary.
As a minimum, umbrella companies should offer Public Liability Insurance, Professional Indemnity Insurance and Employer’s Liability insurance. However, policies and amounts can vary, so it may be worth checking that the policy meets your requirements.
Some contractors will also require additional coverage options depending on their personal situations. This may include additional health and safety coverage for contractors that work on-site or higher indemnity limits for IT contractors, for example.
Help and support
Some umbrella companies will offer a minimal level of customer support in order to keep costs down, whereas others will offer a more hands on level of support. It’s worth considering whether more support will be an important factor for you and whether this is worth paying slightly more for to have peace of mind that if you are facing a problem, you will have support when you need it.
Choosing the best umbrella company for you
Having read our guide, you should now have a good idea of how umbrella companies are the same and how they are different, so you know what to look out for when choosing an umbrella company.
Although all umbrella companies offer similar basic services, some offer more in terms of support and benefits, and differ in how they charge their fees, meaning it's important to understand these differences in order to find one that's the perfect fit for your needs.
To help you find the right umbrella company, Umbrella Search is here to help. We will work with you to understand what it is you need from an umbrella company, whether that’s additional insurance cover or same day payments, in order to find a company that suits your needs.
To see how we can help, simply get in touch with the Umbrella Search team today and see how we can help.
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