An Umbrella Company Comparison Guide

An Umbrella Company Comparison Guide

The umbrella company market is booming, and there are over 500 providers in the UK. With so many companies to choose from, how do you know which umbrella will provide you with the best value and most reliable payroll service? Please keep reading because this guide will explain everything you need to know to make a successful and rewarding umbrella company comparison. We even have a table of all the FCSA and Professional Passport accredited providers that’s well worth checking out!

Introduction

It can be difficult to identify a payroll provider with so many umbrella companies to choose from. However, you must pick a trustworthy and compliant umbrella because the consequences of non-compliance could be severe.

Compliant umbrella companies all operate payroll in the same way – they use HMRC’s tax system called Pay As You Earn (PAYE). The umbrella will receive your gross pay from your agency or end client and pay you your net salary – after all the deductions have been made. These include tax, Employer’s National Insurance Contributions, the employment costs, and possibly student loan repayments and pension contributions. Before comparing the companies in the marketplace, you need to understand precisely how umbrella companies work.

Amazingly, we’ve noticed a lot of negative reviews that umbrella companies receive (even the best in the industry) are because of reasons beyond their control. For example, complaints about pay retention are not always fair because it’s not the umbrella company’s fault that they have to make the necessary and legal deductions. If you want to understand more about how umbrella companies work, please read our guide: Umbrella Companies Explained. We’ve also written an article that explains which umbrella company complaints are legitimate, and which ones are fussy.

15 tips to consider when making an umbrella company comparison

There is a lot of information that you must process when making an umbrella company comparison and we’ve listed the most important factors to consider below. Please read it carefully and comment at the end of this guide if you have any additional tips for our readers, and we’ll update this guide accordingly.

PAYE and take-home pay

Compliant umbrella companies will run their payroll in accordance with HMRC’s tax system Pay As You Earn (PAYE). Essentially, you will be paid like an employee in a permanent role, and deductions will be sent directly to HMRC from your umbrella before you receive your net salary. However, it’s essential to understand that umbrella employees will also see the employment costs as deductions on payslips, and these are the Apprenticeship Levy and Employee’s National Insurance.

Initially, this may sound unfair. However, the only income that umbrella companies generate for themselves is the margin they deduct for processing the payroll of employees (mentioned below). Umbrella companies, therefore, cannot be responsible for employment costs. What should happen is the end-client and agency should offer all temporary workers (who use umbrella companies for payroll) a rate of pay that considers the employment costs – to ensure they are not out of pocket). You may notice that the best, most reputable staffing agencies will offer different rates for the same role – depending on the preferred payment method for the workers (e.g. a lower rate for agency PAYE compared to those opting to use an umbrella company).

With the employment costs in mind, let’s now look at umbrella company margins in more detail because it’s important to understand how they work and their significance on your pay retention.

Umbrella company margins

To put it simply, all compliant umbrella companies process your payroll in exactly the same way. The only thing that will vary between providers is the margin they deduct. Here is an example.

Umbrella Company A is compliant and has a £30 per week margin. Umbrella Company B is also compliant but has a lower, £15 per week margin. If a worker was to choose Umbrella Company B over Umbrella Company A, they would retain a few extra pounds each week. Both umbrellas will operate PAYE, but the lower margin will mean the worker retains more money – but only a little bit.

Umbrella company margins are taken from the worker’s gross pay – before tax. This means that umbrella company employees essentially get the umbrella service for less. It’s worth taking this into account because most umbrellas will advertise their gross margin. However, some will promote their net margin to trick you into thinking their service is better value than it actually is. When comparing umbrella companies – picking one with a low margin is a good way to save a few pounds – but make sure their service is up to scratch.

Take-home pay calculations

Disappointingly, it’s well-known that some umbrella companies have been deliberately inflating take home pay calculations to mislead temporary workers. For example, if a worker is new to umbrella companies and one umbrella quotes them a far higher take-home pay figure than another – it’s no surprise the worker will be tempted to join the umbrella that says they can help them earn more. However, in reality, we know that all compliant umbrella companies process payroll in the same way. Therefore, all illustrations from umbrella companies should be very similar, assuming they’re based on the worker’s circumstances.

If you believe you were given a deliberately misleading umbrella company calculation by your current provider – to trick you into registering with them – do you really want to remain an employee of theirs? Shopping around for take-home pay calculations may sound time-consuming, and it is. However, it may help you identify the unethical and untrustworthy providers from the ones providing a transparent service. It’s a good way to compare umbrella companies!

The dangers of tax avoidance

Compliant umbrella companies run payroll with the PAYE tax system. Tax avoidance schemes will not. You must understand how compliant umbrella companies operate, and you can identify the warning signs of a tax avoidance scheme.

Tax avoidance schemes, as the name suggests, will help you retain more of your money by paying less tax. While this may sound tempting and tax avoidance is technically legal, it could land you in serious trouble with HMRC, who can retrospectively demand you repay tax they deem you to owe.

When reviewing umbrella companies – make sure you only consider using compliant providers who abide by UK tax law. Engaging with a tax avoidance scheme could have devastating consequences, and you should never be tempted! The next section summarises the clear and obvious signs of a tax avoidance scheme.

Identifying non-compliant umbrella companies

If you work in UK, it makes sense that you are expected to pay your fair share of tax and National Insurance. However, there are businesses out there who promote themselves as being able to reduce your tax liability, and many claim what they’re offering is perfectly legitimate. Don’t be fooled. Here are some of the obvious indicators that a payroll provider is a tax avoidance scheme:

  • They are based outside the UK in well-known tax havens such as the Isle of Mann, Channel Islands, Cayman Islands, Panama, etc.
  • The company has no history and has only been around for a few months (look them up on Companies House first).
  • The organisation has been issued with a Scheme Reference Number (SRN) from HMRC, meaning it is under investigation for potential rule breaches.
  • The company’s website is very vague and makes bold claims such as “pay less tax”, “HMRC compliant” and “better than PAYE”, etc.
  • They claim to work with some of the world’s biggest companies and have logos on their website.
  • They do not have many online reviews.
  • They operate unusual payment methods, such as loans, credits, job board credits, shares, etc. Remember – compliant umbrella companies will process your pay with PAYE (HMRC’s tax system).
  • Tax avoidance schemes can often be difficult to communicate with and perhaps only have a live chat feature on their website.

When conducting an umbrella company comparison – if you suspect a provider in a tax avoidance scheme, avoid them at all costs.

Accreditations

We have already mentioned the importance of choosing a compliant umbrella company, but with so many to choose from in the UK, it can be difficult to identify a compliant umbrella from a dodgy one.

The UK government doesn’t regulate the umbrella company marketplace at the moment, despite many stakeholders demanding they intervene and provide more protection for the UK’s temporary workforce. However, despite no official regulations, two self-regulatory bodies are providing well-respected accreditations to umbrella companies that pass a series of strict audits and assessments – the Freelancer and Contractor Services Association (FCSA) and Professional Passport.

To make your umbrella company comparison easier – we recommend you only consider using those accredited by either the FCSA or Professional Passport. To gain one of these accreditations, umbrella companies are extensively vetted and must provide clear evidence they operate in accordance with UK tax law and the best interests of their employees. Both the FCSA and Professional Passport work closely with HMRC to make recommendations and present arguments to improve the compliance of the UK’s payroll sector for temporary workers.

If you scroll down, we have produced a table of all FCSA and Professional Passport accredited umbrella companies – to help you pick a provider you can trust. We hope you find it helpful.

Little extras

The umbrella marketplace is saturated. As a result, many providers will offer little extras to entice temporary workers to choose them over the competition and this can work to your advantage. For example, it’s common for some of the leading umbrellas to include one or more of the following within the standard umbrella service they offer:

  • Access to an employee reward scheme (an arrangement that allows you to benefit from discounts at high street stores, eating out, etc.).
  • Signing on rewards, such as a special low margin or a few weeks margin-free (the umbrella will repay you the margin for a set number of weeks).
  • Access to an online, cloud-based portal.
  • Welfare packages, such as discounts with leading private health insurers.
  • Salary sacrifice – allowing you to boost a private pension in a tax-efficient manner (only offered by a handful of umbrella companies).
  • Ongoing support from specialists within the sector (assistance with IR35, running a PSC, switching between limited and umbrella, etc.).

Website, literature and knowledge

The better umbrella companies will have a lot of helpful and accurate information on their websites. Most importantly, the trustworthy umbrellas will not lie to you in their written communication. When creating an “umbrella company shortlist” – check out each umbrella company’s website and get a feel for their industry knowledge. If a website lacks important information and guides, it may be worth avoiding that provider.

Umbrella company portal and software

How you get paid by an umbrella company will vary slightly between providers. While all umbrella companies operate PAYE, some will provide you with access to software to submit timesheets and view payslips. In contrast, others operate in a more “old school” fashion where you will need to email in signed timesheets, and you will be given access to payslips once you’re paid.

You may not be tech-savvy and, as a result, not be fussed about access to a portal. However, if you’re more technically inclined, a state-of-the-art umbrella company portal may sound like an awesome selling point and addition to your experience with an umbrella. Therefore, bear this in mind when comparing umbrella companies because a portal may provide you with extra value.

Some of the leading umbrella apps are powered by well-known third-party organisations, such as Solutio and My Digital.

Recruitment Agencies and Preferred Supplier Lists (PSL)

Many recruitment agencies have Preferred Supplier Lists (PSL) in place. A PSL is a list of companies that an agency recommends their candidates use, and in some cases, the worker is not allowed to use a provider that isn’t on the agency’s PSL. This can be both a blessing and a curse. Let us explain.

When it comes to payroll providers on a PSL, trustworthy and ethical agencies will have PSLs consisting of the very best and most reliable umbrella companies in the sector. It’s in the recruitment agency’s best interests to refer candidates to compliant payroll providers to ensure they remain compliant with legislation (e.g. the Criminal Finances Act). Searching for an umbrella company can be time-consuming, and therefore, using an agency’s PSL as a starting point will undoubtedly save you time.

While most agencies will have dependable PSLs, some won’t – and you must be prepared. During the coronavirus pandemic, mini umbrella company fraud came to light. To put it simply, some agencies were reportedly referring candidates to non-compliant umbrella companies in exchange for a financial reward. This type of activity is very rare, but it’s known to occur. Therefore, you should conduct due diligence before registering with a payroll provider. If you’re unsure about anything (including whether the payroll provider is compliant or who your payroll provider will be while working through the agency), seek answers immediately and do not register with them.

You should never feel pressured into using an umbrella company you do not want to use. If you feel like an agency is forcing you to use a specific provider, don’t register against your will, and make sure you raise your concerns with the recruitment consultant you’ve engaged with.

Affiliated third parties

Some of the more prominent, most established umbrella companies will partner with organisations that can help you with “life administration”. You may need to pay for these services (although you’ll be eligible for a discount), but some might be included for free. We’ve seen umbrella companies with relationships with the following types of businesses:

  • Wealth management specialists
  • Pension providers
  • Insurers
  • Mortgage advisers and providers
  • Investment specialists

Additional payroll services

You should consider your circumstances before selecting an umbrella company because some will be able to cater to you better than others. For example, are you usually a limited company contractor but looking for an umbrella company for a one-off assignment – perhaps because it’s inside IR35? If you are, your accountant (if you have one) may be able to provide you with PAYE payroll, and you should ask them. Alternatively, they might be partnered with an umbrella company that will provide you with a seamless transfer between the two services.

Or, perhaps you have no loyalty to your contractor accountant. In this case, you might consider looking for a new accountant who can help you with umbrella payroll (some of the market leaders offer accredited contractor accountancy and umbrella payroll services).

On the other hand, you might be a seasoned contractor or freelancer who will require the ongoing services of an umbrella for the foreseeable future. If this is you – choosing the right umbrella is extremely important. Take all the content in this guide into consideration, and pick a provider that is not only compliant but ensures you receive excellent value for money. If you’re unhappy with your current umbrella company, perhaps because they have let you down with customer service or the margin is too high, you should not hesitate to shop around. Switching umbrella companies is easier than you think, and it may enhance your contracting career. Please read our blog: Should You Bother Transferring Umbrella Companies?

Reading trustworthy reviews

Before most purchases, we’ll look at online reviews before deciding which product to buy. The same should apply when you are choosing an umbrella company. When you have a list of potential umbrella companies, check them out online and see what other contractors and freelancers say about them. We recommend you look at both Google reviews and Trustpilot – as these are two leading platforms that’ll give you an accurate representation of an organisation. Read the reviews carefully because some negative comments may not be the umbrella company’s fault. For example, many workers complain about late payments, but if the umbrella hasn’t received the worker’s funds from the agency – it’s not necessarily their fault.

Understanding the registration and onboarding process

When registering with an umbrella company, take the following into consideration:

  • The registration process should be clear, obvious and thorough.
  • Ongoing support should be available at all times – via phone and email.
  • The service should have been explained clearly before you get to the registration stage, and all your questions (prior to registering) should have been answered to your satisfaction.
  • You should be asked to provide proof of your identity and right to work (RTW) in the UK.
  • The margin should be have been discussed and confirmed.
  • A representative from the umbrella should have provided you with a tailored take-home pay calculation and issued an example payslip.

Industry-leading umbrella companies will have very similar registration processes. However, if you ever feel like something isn’t right, and perhaps the umbrella company is holding back some information or not providing you with a sense of security – don’t sign with them. There is no shortage of alternatives!

The onboarding process is often defined as the period between registration and being paid for the first time. The umbrella should have explained exactly what happens and what you need to do to be paid promptly and on time. And, if any questions or concerns pop up along the way, they should be on hand to answer these quickly and to your satisfaction. As we said earlier in this guide, switching from one umbrella to another isn’t difficult, so never put up with a substandard service.

Contracts of Employment

There is no hiding from the fact that Contracts of Employment are complex. However, you must read the Contract of Employment given to you by your umbrella company before you sign on the dotted line and register. If you have any questions about the contract you’re presented with, do not be afraid to speak with the umbrella company. Most top providers will have a dedicated Compliance Department who will be on hand to run through the Contract of Employment with you.

We understand that only a few specialist legal firms write the Contract of Employment for a majority of umbrella companies. Therefore, if you’re shopping around and want to review Contracts of Employment before choosing a company to commit to – be prepared for many very similarly worded documents. If you don’t like the Contract of Employment, avoid the umbrella and look elsewhere.

Comparing FCSA and Professional Passport accredited umbrella companies

To help make your life easier, we’ve collated a list of the FCSA and Professional Passport accredited umbrella companies, and they’re available in the table below. You can also filter the table using the column headings – if you would prefer.

The FCSA and Professional Passport accreditation comparison table above has been created by the umbrellacompanies.org.uk Team in good faith. We’ve collated the information from the official FCSA and Professional Passport member directories, and have done our best to ensure the information is accurate at the date of publishing. We highly recommend before you register with an umbrella company or appoint a contractor accountant, you carry out thorough due diligence, and check they’re definitely accredited by the professional body listed above. If you find an error in the table above, we’d love to hear from you so that we can make the appropriate amendment. Please email info@umbrellacompanies.org.uk. Read our website’s disclaimer as well, available here.

Table last updated: May 2022

Top 10 umbrella companies

In a hurry? We’ve already conducted an umbrella company comparison for you by collating a list of our top 10 umbrella companies to save you time! Please check them out now. They’re all accredited by either the FCSA or Professional Passport, and some have special offers at the moment.

The Complete Umbrella Company Guide - Download Now

Click here to see our top 10 umbrella companies!

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