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  • Writer's pictureUmbrella Search

What you need to know about comparing umbrella company fees

Updated: Feb 8, 2023

Suppose you're thinking about joining an umbrella company in 2023. In that case, you will know there are a lot of factors to consider when choosing an umbrella company. From which umbrella company will offer the best level of services for your contracting needs to how much they will charge in fees, contractors must research to find the best fit for them.

To help make the decision slightly more straightforward, Umbrella Search has put together this comprehensive guide to umbrella company fees - from how umbrella company fees work to how much you expect to pay so that you can make the best decision for your contracting career this new year.

Umbrella company fees explained

Suppose you're new to contracting, or it's your first time considering an umbrella company. In that case, you'll need to understand umbrella company fees. After all, you may wonder if an umbrella company is worth the additional expense out of your pocket each month, so let's look at what exactly you'll be paying for.

Umbrella companies will provide the contractor with a range of services for a fee.

Firstly, the umbrella company will become the contractor's employer. It means they will set the contractor up on their payroll and pay their salary before processing it through the pay-as-you-earn (PAYE) tax system. This is widely considered a key benefit to umbrella company contracting as it means that the contractor's tax and National Insurance obligations are calculated and paid to HMRC on the contractor's behalf.

Likewise, as an employee of their chosen umbrella company, the contractor is entitled to statutory benefits. This means that contractors can avoid paying out of their own pockets if they wish to go on holiday, fall ill, or want to take maternity or paternity leave.

In exchange for the fee, the umbrella provider also takes on tasks such as admin, paperwork, and invoicing the client, meaning one less worry for the contractor.

Finally, the umbrella company will also sort out things like contractor insurance, such as professional indemnity insurance and employer's liability insurance, as well as offering any advice to the contractor to help make their lives easier, such as help with things like pensions and childcare tax credits.

How much are umbrella company fees?

That's why umbrella companies charge a fee, so how much can contractors expect to pay?

Although there's no one-size-fits-all when it comes to umbrella company fees, in general, contractors can expect to pay around £20+ per week. The exact amount will depend on several factors, including the level of services the contractor requires.

That's why it's sometimes best to opt for the cheapest provider. After all, if you require benefits such as same-day invoicing or additional holiday pay, you can expect to pay a little more for these services.

How do contractors pay umbrella fees?

There are two different ways that a provider can charge umbrella company fees.

Firstly, fees can be charged as a fixed amount. As the name suggests, the contractor pays a fixed sum of money to the umbrella company each week or month, which always remains the same.

Many contractors prefer this method as it means they know how much they will be paying in fees from their salary and will not have to pay more if they begin to earn more.

This takes us to the second way umbrella companies can charge fees – as a percentage.

Here, the contractor will pay a percentage of their earnings to the umbrella company in fees. For this reason, many contractors avoid this way of paying fees as it means that if they begin to earn more, they will pay more in fees while still receiving the same level of services from their provider.

Net vs. gross fees

The other thing to look out for when it comes to umbrella company fees is whether they are charged as net or gross fees.

Gross fees mean that the contractor will be charged the fee before tax relief is applied. This is generally considered a benefit as it reduces the amount of tax owed by the contractor.

However, fees can also be charged as net fees. This means that the contractor is charged after tax relief has been applied. How the fees are charged will impact the contractor's finances, meaning it's essential to consider this.

Are there any hidden costs?

Although most umbrella company fees are straightforward, contractors must look out for additional costs to ensure they only pay what they agreed,

For example, checking whether there is a sign-up fee for joining the umbrella company and an exit fee for leaving is essential.

Contractors should also look for additional fees for services provided by the umbrella company, such as processing same-day payments or helping with childcare tax credits. Again, contractors may rely on these services, so it's essential to factor in how much extra you will end up paying.

Now you know how umbrella company fees work, let Umbrella Search help with the rest

Now you know what to look out for when it comes to umbrella company fees, Umbrella Search is here to help you find the best umbrella company for you at a price you can afford.

We will not only help you understand how much you will be paying in fees and find you a fair deal, but we will also find you an umbrella company that meets all your contractor requirements.

Our friendly team will work closely with contractors to find the best umbrella company in 2023. To find out how we can help today, get in touch for a quote, and we will get back to you as soon as possible.

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