Is the cheapest umbrella company the best option?

Is the cheapest umbrella company the best option?

If you’re interested in using an umbrella company for your payroll, you may be tempted to identify the cheapest umbrella company in the marketplace and use them. However, is this a good idea? This article explains why you need to consider more than just the umbrella company’s margin before you register with a payroll provider. We hope you find this helpful!

Firstly, before the umbrella company’s margin is discussed, you must identify a compliant umbrella company for your payroll. There are over 500 umbrella companies in the UK, and a majority provide compliant PAYE payroll to thousands of temporary workers. However, a few have entered the marketplace and are encouraging workers to avoid paying their fair share of tax. Tax avoidance schemes are evil, and engaging with one could have severe consequences. HMRC is continuously stepping up its efforts to catch both those facilitating tax avoidance and the people who enrol with the unethical payroll arrangements. Remember – UK workers are expected to pay tax and National Insurance Contributions (PAYE). If you ever find an umbrella company advertising the opportunity to pay less tax – avoid them at all costs.

Carrying out due diligence is essential before you commit to the services of an umbrella. It’s worth noting that while the government doesn’t currently regulate the umbrella company sector, there are two well-known and well-respected self-regulating professional bodies in the sector – the Freelancer and Contractor Services Association (FCSA) and Professional Passport. For an umbrella company to gain accreditation from either of these organisations, they must prove they operate in full compliance with HMRC’s rules and regulations. They are required to undergo a series of audits and assessments.

The only income that a compliant umbrella company retains is the margin that’s deducted from your gross salary. The margin is the umbrella’s income that covers administration, business costs etc. It’s worth remembering that the only thing that should impact your pay retention between two compliant umbrella companies is the margin. And, when referring to the “cheapest umbrella company”, the cheapest will be the one with the lowest margin – assuming they’re compliant.

For example, if you approach two compliant umbrella companies and they both have a £20 per week margin – you should retain the same amount with both – to the penny. If one of the umbrella companies dropped their margin to £15 per week (a £5 per week reduction), you should expect to retain a few extra pounds with the umbrella company with the lowest margin. In honesty – the umbrella company margin hardly impacts your pay retention – maybe just a few extra pounds here or there. However, the difference between a £10 per week margin and a £40 per week margin would be far more noticeable.

You should never base your decision on which umbrella company to use solely on the weekly or monthly margin they are offering. After all, the umbrella company with the lowest margin might not have professional accreditation and may have awful customer service. Is it worth using an umbrella company that might pay you non-compliantly and doesn’t address your queries – to save £2 per week? The answer is no. You are far better off choosing a compliant umbrella company that offers peace of mind and additional value (such as an excellent all-around service).

And, there is a distinguishable difference between the cheapest umbrella company and the umbrella company that offers the best value. There are so many factors to consider when choosing an umbrella, including compliance, extras such as employee discount schemes, insurance, Same Day Faster Payments, reputation, reviews, etc.


So, is the cheapest umbrella company the best? The answer is simple – you should never base your decision regarding your umbrella company on the margin alone. Base your decision on compliance and only pick a compliant umbrella.

Sure – you may decide that the best compliant umbrella has the lowest margin. If this is the case, maybe the cheapest umbrella is the best. However, you must consider far more, and you need to identify the umbrella company that provides you with the best value – not the lowest margin.

Umbrella companies offer more than just payroll. Choosing a compliant umbrella with professional accreditation adds value to the service you receive because you can move forward with peace of mind. It’s also highly likely that accredited umbrella companies will have better customer service standards than non-accredited umbrellas. And, don’t forget – umbrella companies frequently include plenty of extras as a thank you for choosing them over the competition. These include insurance, referral rewards, employee discount schemes, Same Day Faster Payments, and more.

Our advice – pick an umbrella company that is compliant and provides you with the best value. Please don’t choose the cheapest umbrella company and think you’ve made the best decision because there is more to it than simply the umbrella company’s margin.

Top 10 umbrella companies

Our top 10 umbrella companies are all accredited by either the FCSA or Professional Passport, and some have special offers at the moment. Please go and check them out!

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