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  • Writer's pictureUmbrella Search

Why does an umbrella company charge fees?

Every contractor considering using the services of an umbrella company will want to know why they charge fees. Contractors understandably want to ensure that they are getting the most for their money, so it's important to understand what the umbrella company fee covers, how much you will be paying, and what you will receive in return.

To help, Umbrella Search has put together this guide so you can learn everything you need to know before parting with your hard-earned cash.

Why does an umbrella company charge fees?

Let's start by looking at why an umbrella company charges fees.

Every umbrella company charges the contractor a fee in return for a number of services and benefits offered.

Firstly, the umbrella company employs the contractor. This offers a range of benefits to the contractor, meaning that the umbrella company will pay them a salary each month, rather than having to wait for the client to pay up directly.

The umbrella company will place the contractor on its payroll and, in turn, submit their pay through the PAYE tax system, meaning the contractor is always up to date with what they owe in tax and National Insurance.

As well as making pay and taxes much more simple and hassle-free for the contractor, being employed by the umbrella company also means that they benefit from paid holiday leave, sick pay and maternity/paternity leave. This means that if you need to take time off work for any reason, you can rest assured that you will still be paid, a great level of security for contractors.

As well as employing the contractor, the umbrella company also takes care of things like paperwork, admin tasks, communicating with the client, invoicing the client, submitting expenses and organising insurance.

This takes a lot off the contractor's plate and frees up more of your precious time to focus on the contract you're there to do.

The umbrella company is also there to guide you and advise you should you need it at any time, again offering a great network of support and security to the contractor.

As you can see, there are a number of benefits to joining an umbrella company. Although these benefits come at the cost of a fee, they free up the contractors time, mean you can focus on what's important, and won't need to fork out on an accountant which can be costly.

How much do umbrella company fees cost?

That all sounds great, so you will inevitably want to know how much it will cost you.

Contractors will be pleasantly surprised to learn that umbrella company fees are and have remained very competitive, meaning they won't cost you the earth.

In return for all their services and the benefits they provide to the contractor, the umbrella company usually asks for around £25 upwards per week. This will differ from umbrella company to umbrella company, so you should always check this and shop around, which Umbrella Search can help with.

This fee usually covers everything, however there are some instances in which the umbrella company will charge more.

This can include things like a one-off fee for signing up or leaving the umbrella company, or should you wish to receive same-day payments. Some umbrella companies can also charge additional for tasks such as processing expenses, so this is always worth checking when comparing umbrella companies.

What is an umbrella company?

Another thing that contractors should look out for when choosing an umbrella company is whether they charge their fees as a fixed fee or as a percentage fee, as this can also change how much you end up paying.

Most umbrella companies will charge their fees as fixed fees, which means you will always pay the same agreed fee each time.

However, a small number of providers will charge a percentage fee. This means that their fee is taken as a percentage of the contractor's earnings, rather than a set figure.

If you earn more on a new contract, you will, therefore, pay more to the umbrella company. However, it is worth bearing in mind that you will still receive the same level of service in return, leading many to prefer the fixed fee method.

Is it worth the cost?

Although using the services of an umbrella company does come at a cost, the great news is that umbrella company fees are relatively low, and offer the contractor a range of benefits in return.

What's more, as the umbrella company fee is classified as a legitimate expense by HMRC, it is deducted from the contractor's salary before it is processed for tax, reducing your tax liability and how much you will owe in tax.

It is also worth considering that should you go it alone and contract on a self-employed, limited company basis, you will usually have to adopt the services of an accountant to help out with company accounts, corporation tax returns as well as a self-assessment, all of which can be very complex and time-consuming.

If you think that using the services of an umbrella company is worth your money and time, Umbrella Search is here to help you with the next steps.

Let us find an umbrella company that's right for you

The good news is that there are plenty of umbrella companies out there to choose from, however this can make it difficult to know which is the best to go with. That's where Umbrella Search are at hand to help.

Taking into consideration your budget and criteria, we will take on the task of comparing umbrella companies to find one that's a perfect fit for you.

We will work closely by your side to fully understand what you're looking for, to come up with the best match.

To see how we can help you, why not get in touch with our friendly team today?

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