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Umbrella company fees: how much should you pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an essential role in the decision-making process.

Umbrella company fees are taken directly from the contractor's income, so naturally, contractors want to ensure they get a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Search outlines everything there is to know about umbrella fees in this handy guide.

Why do umbrella companies charge fees?

Every umbrella company offers the contractor a range of services and benefits and, in return, charges the contractor a fee:

  • The umbrella company employs the contractor and puts them on its payroll. The company pays the contractor a regular salary and deducts their tax and National Insurance through the PAYE system. This means the contractor can undertake simple tax calculations through self-assessment as self-employed.

  • The umbrella company offers the contractor a range of statutory benefits, including sick pay, holiday pay, maternity or paternity leave, and a workplace pension. The umbrella company invoices the client on the contractor's behalf, chasing late payments. Again, this is a significant benefit for umbrella contractors, unlike self-employed contractors who would need to cover the costs out of their pocket should they wish to take time off to go on holiday. Read more about contractor holiday pay and other statutory benefits in our handy guide.

  • The umbrella company provides the contractor with the basic insurance required for the contract. This typically covers professional indemnity and public and employer liability insurance. Again, this is not the case for self-employed contractors responsible for covering these costs out of their pocket.

  • Umbrella companies can also offer additional perks and benefits, including same-day payments, different levels of insurance cover, extra holiday pay, help with things like childcare credits, help with processing business expenses, and other paperwork or admin tasks.

What is an umbrella company?

How much do umbrella companies charge?

Now that you know why umbrella companies charge their fees, let's get down to business and look at how much they charge. After all, this will come directly from your pay cheque, meaning you must get a fair deal.

Umbrella company fees vary from company to company. Still, contractors typically expect to pay upwards of £25 per week in umbrella fees.

However, this varies depending on the services and benefits the umbrella company offers. You can expect to pay less if you only require basic service from the company. However, if you need a range of benefits and additional services, you will pay higher umbrella company fees.

How are umbrella company fees charged?

Now you know how much you can expect to pay in umbrella company fees, let's look at how fees are charged, as this can also impact how much you will end up paying.

Umbrella fees can be charged as either fixed fees or percentage fees.

  • Fixed fees: as they sound, fixed costs are when an umbrella company charges the contractor a fixed price, weekly or monthly. This is taken off the contractor's income before it is processed for PAYE.

  • Percentage fees: here, on the other hand, the umbrella fee is worked out and charged as a percentage of the contractor's invoice value. This is usually the worst option for contractors, who can end up paying higher fees if their contractor rate increases while receiving the same level of service.

For this reason, most contractors prefer paying their fees as fixed fees, which means they won't have to pay more if they begin to earn more.

Fees can also be charged as net fees or gross fees.

This can also significantly impact how much you pay, meaning it's essential to consider when choosing which umbrella company to work with.

  • Gross fees: here, the contractor will be charged their fee before tax relief has been applied

  • Net fees: however, with net fees, the contractor will be charged the fee after tax relief has been charged

  • Are there any other umbrella costs to take into consideration?

  • Umbrella companies may also charge the contractor additional costs, directly impacting your pay.

  • Some extra costs to account for include:

  • Sign-up fees: some umbrella companies charge a one-off joining fee

  • Exit fees: likewise, umbrella companies can also charge a one-off payment for leaving the company

Charges for additional benefits or admin tasks: it's essential to look at whether the umbrella company charges extra costs for other benefits like same-day payments or admin tasks such as processing expenses, as this can have a direct impact on how much you end up paying

For this reason, it is always important to take the time to understand what the umbrella company fee covers and whether you will incur any additional costs for extra services or benefits.

Find an umbrella company that's the best fit for you with Umbrella Search

Now that you know what to look for regarding umbrella fees and how much you should pay, the next step is to let Umbrella Search help find the best provider.

At Umbrella Search, we do all the hard work for you, working closely with contractors to get to know their requirements to find an umbrella company that can best provide for these.

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