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  • Writer's pictureUmbrella Search

Top tips for starting out with an umbrella company

Many contractors have made the move to umbrella company contracting in recent times. With changes to IR35 legislation that came into implementation last few years, and with the many benefits on offer to contractors through an umbrella company, this has become a popular route for contractors to take.

If you are considering making the move to contracting, Umbrella Search has put together this handy guide with our top tips for starting out with an umbrella company to ensure you make the most out of umbrella contracting in 2023.

1. Understand how an umbrella company works

The first tip Umbrella Search would offer to contractors considering using an umbrella company is to do your research to find out how they work. After all, this will be a new way of operating for contractors, meaning it’s important to ensure that this is definitely the best option for you.

Unlike a limited company contractor who is self-employed and must set up their own company, when a contractor signs up with an umbrella company, they then become an employee of their chosen provider.

This means that the contractor is then put onto the umbrella company's payroll. In practice, all the contractor must do is submit their timesheet to the umbrella company, who will then draw up an invoice and submit this to the client.

The umbrella company then collects the fee on the contractor’s behalf and processes it through the PAYE system. This ensures that the correct levels of tax and National Insurance are taken off the contractor’s salary before it is paid to them, in line with current UK tax bands.

Now you know how an umbrella company works, let’s look at some other tips to starting out in umbrella contracting.

2. Find a company that meets your contractor requirements

The next tip we would offer contractors is to find an umbrella company that meets all their contracting needs and requirements.

After all, every contractor is different. Some contractors need same-day payments, others want to pay more in pension contributions. Whatever your particular contractor needs, it's important to find a company that fulfills them.

There are plenty of umbrella companies out there, all offering different levels of services and benefits. Therefore, contractors should do their research to make sure they are finding one that works for them.

What is an umbrella company?

As a minimum, umbrella company contractors will offer the following services:

- Invoicing the client and chasing late payments

- Processing the contractor’s pay through their payroll

- Paying the contractor the correct salary and issuing a payslip outlining what the contractor has paid in tax, National Insurance, holiday pay, pension contributions and any other deductions

- Providing the contractor with statutory benefits, including the correct levels of holiday pay, sick pay and maternity and paternity pay. Read more about the statutory benefits available to contractors in our useful guide.

- Providing contractors with insurance that they are legally required to have

However, many umbrella companies will also offer an additional range of services for an additional cost. These include:

- Help with things like childcare tax credits

- Processing expenses

- Issuing same-day payments

- Help with additional levels of insurance

Therefore, when starting out with an umbrella company, it is crucial to ensure that they provide the full range of services you require in order to make sure that you get the most out of your chosen provider.

3. Ensure you get your statutory benefits

As we have touched on, umbrella company contractors are entitled to statutory benefits.

These include:

- Statutory holiday pay - umbrella company contractors can claim holiday pay are entitled to 28 days or 5.6 weeks paid holiday per year, which is worked out on a pro-rata basis for those contracting part-time.

- Statutory sick pay - contractors operating through an umbrella company are eligible for statutory sick pay, which stands at £109.40 per week up to 28 weeks per year.

- Statutory maternity leave – umbrella contractors can also benefit from maternity pay. Here, contractors will receive 90% of their weekly pay for the first 6 weeks. Following this, they will receive 90% of their average weekly pay or £172.48 per week, depending on which figure is the lowest.

- Statutory paternity leave – likewise, contractors can receive 90% of their average weekly pay or £172.48 for 1-2 weeks paternity leave, depending on which is lowest.

This is great news for umbrella company contractors as it means they will be paid should they unexpectedly fall ill and can’t work or even just need to take a holiday.

That’s why it’s important that when starting out with an umbrella company that contractors familiarise themselves with the statutory rights they are entitled to.

4. Use Umbrella Search to find your perfect match

Finally, anyone considering using an umbrella company should seek the advice of professionals to help them find the perfect umbrella provider for their needs.

With so many umbrella companies out there, seeking the help of Umbrella Search will help contractors remove the hassle and hard work of finding the best umbrella company suited to them and their contractor requirements.

At Umbrella Search our team of friendly professionals will work closely with you before carrying out the research and due diligence to find an umbrella company that is aligned with your contracting values in terms of how much you will pay in umbrella fees, the services and benefits the umbrella company will offer you and how much your salary will be.

This allows contractors to find an umbrella company with no stress or hassle.



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