Finding a good umbrella company: 10 tips for temporary workers

Finding a good umbrella company: 10 tips for temporary workers

We’re reading more and more trash online about umbrella companies and how “dodgy” and “unethical” they all are. We’re not here to mislead our readers, and some umbrella companies have acted poorly in the past and should be black-listed. However, most UK-based umbrella companies provide a valuable service that’s reliable and worth investigating. Our latest blog is designed to help temporary workers find a good umbrella company. We hope you find it helpful.

Research umbrella companies and how they work

Before you consider using an umbrella company, you must understand how they work. We have recently written an article about the most common umbrella company complaints, and it’s our belief that many arise from misunderstandings. Contractors often have issues about their pay retention and other elements that they should know before registering with a brolly. All compliant umbrella companies process payroll in the same way, and deductions are sent to HMRC on behalf of employees.

A good umbrella company will explain everything to you before you register, including how they operate, as well as covering the most frequently asked questions they get from temporary workers. We’ve written a guide called Umbrella Companies Explained, and we recommend you give it a read.

Understand the marketplace

There are over 500 umbrella companies in the UK, and a majority of these provide a trustworthy and compliant PAYE payroll service. Providing you identify a compliant umbrella company, you have nothing to worry about because your payroll will be in safe hands.

Industry stakeholders have recently scrutinised umbrella companies because there have been some controversial events in the last year. For example, an FCSA accredited umbrella company was recently accused of pocketing the retained holiday pay of its employees. If this happened – it’s appalling, and the umbrella company deserves to be severely punished.

As a result of the accusations against umbrella companies, there has been a campaign to encourage the government to regulate the umbrella company marketplace. We’ve shared our thoughts on this, and anything to provide temporary workers with extra protection is most welcomed.

Presently, two professional bodies self-regulate the umbrella company marketplace – the Freelancer and Contractor Services Association (FCSA) and Professional Passport. Both bodies are doing an excellent job, and if you’re looking for an umbrella company, we recommend you choose one with an FCSA or Professional Passport accreditation. To obtain accreditation from these bodies, umbrella companies must undergo a series of assessments and audits to ensure they operate compliantly and in accordance with UK tax law.

Respect professional bodies

We’ve seen online posts claiming the FCSA and Professional Passport are unethical and don’t have temporary workers’ best interests at heart. Almost every claim against these organisations is unfounded and almost certainly untrue. Our opinion is umbrella companies with an accreditation from one of these bodies are committed to compliance, customer service and will provide you with a positive payroll experience.

Acknowledge PAYE

Umbrella companies will process your payroll with Pay As You Earn (PAYE) – HMRC’s tax system. It’s not glamorous. PAYE ensures you pay the correct tax and National Insurance Contributions (NICs), and you should expect to retain roughly 50 – 70 percent of your pay after deductions. All compliant umbrella companies will process your payroll in the same way (PAYE).

Look for little extras

Umbrella companies exist to process payroll. However, as the market has become more and more saturated, providers are offering littles extras to encourage people to choose them over the competition. Keep an eye out and see what’s on offer. Extras can include:

  • Free insurance
  • Same Day Faster Payments
  • Employee Rewards
  • Salary sacrifice
  • Discounts
  • Competitions

Check a company’s reputation

It doesn’t matter what product or service you’re looking for – it’s pretty common and a good idea to conduct thorough research before committing to a purchase. The same should apply when selecting an umbrella company to take care of your payroll. We recommend you only consider using FCSA or Professional Passport accredited umbrella companies, but then it’s down to you to research the many providers and identify a few that you’d like more information from. Have a look at websites, read online reviews and check out contractor-focused forums. It’s important to choose an umbrella with good customer service to ensure your payroll runs smoothly.

Identify the umbrella company’s margin

The only income that umbrella companies generate for themselves is the margin they deduct for processing payroll. Taken at gross, the margin covers the umbrella’s administrative and business costs.

As we’ve already mentioned, all umbrella companies (the compliant ones) will process your payroll in the same way. Therefore, the margin is the only thing that’ll impact your pay retention between compliant providers. Choose an umbrella with a £15 per week margin, and you’ll retain a few extra pounds each week compared to an umbrella company with a £30 per week margin. It’s as simple as that.

One bit of advice – don’t solely base your decision on which umbrella to use on the margin. It’s worth choosing an umbrella with a slightly higher margin if it ensures you’re selecting a business with a good reputation and excellent customer service.

Ensure you’re issued with trustworthy take home pay calculations

Umbrella company take-home pay calculations are often contentious because some providers inflate their figures to trick workers into using them (which really annoys us). We’ve written numerous guides on umbrella company calculations to help contractors and freelancers understand what they should be retaining.

A good umbrella company will provide you with an entirely tailored calculation based on your circumstances. If there is anything you don’t understand, do not hesitate to quiz the umbrella company. An umbrella company calculator should be trustworthy, but some umbrellas have let themselves and temporary workers in the UK down.

Understand IR35

Plenty of confusion has arisen when limited company contractors switch to an umbrella company because you’ve found themselves inside IR35 for the first time. You are considered self-employed if you’re outside IR35 and can benefit from limited company contracting (dividends and salary). However, if you’re inside IR35, you’re a deemed employee and must pay tax accordingly (PAYE). It’s not the umbrella company’s fault you’re inside IR35 – they only exist to process your payroll. If you believe your IR35 status has been incorrectly assessed, please speak with your recruitment agency or client.

Top 10 umbrella companies

Hopefully, the above advice will help you pick a good umbrella company. Our final tip to help you find a good umbrella company is to check out our list of top 10 umbrella companies. They’re all accredited by either the FCSA or Professional Passport, and some have special offers at the moment.

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Click here to see our top 10 umbrella companies!

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