With the recent rise in demand for umbrella companies, thousands of contractors are searching for information regarding umbrella company fees. We’ll summarise everything you need to know about umbrella company fees, allowing you to move forward with your umbrella company search with complete peace of mind.
The umbrella company margin
Firstly, the phrase “umbrella company fees” is misleading. Compliant umbrella companies only generate income with one revenue stream – the umbrella company margin. This margin is deducted from employee’s gross salary and is the only income the umbrella retains for itself. The margin will cover the umbrella company’s administrative responsibilities and associated business costs.
Typically, margins apply every time an umbrella company pays a contractor. Umbrella companies will tend to deduct a weekly or monthly margin.
Margins will vary between providers. Usually, you should expect to come across margins in the region of £15 to £25 per week – or £60 to £100 per month. Every compliant umbrella company will process the payroll of its employees in the same way – in accordance with PAYE. Therefore, the margin is the only thing that should impact your take-home pay retention between compliant umbrellas. For example, you should expect to retain a few extra pounds a week if you choose an umbrella with a £15 per week margin compared with an umbrella with a £25 per week margin.
The margin is the only income umbrella companies generates for themselves
Every compliant umbrella company will deduct a margin for processing the payroll of its employees. If you ever come across an umbrella company that is pocketing additional deductions for themselves – you should avoid them at all costs, and report them for malpractice.
The deductions that appear on your payslip are sent to HMRC on your behalf, and the umbrella company will not retain them for themselves. These include income tax, national insurance and employment costs. You may also decide to contribute towards a pension scheme, and your umbrella is legally required to auto-enrol you after 12 weeks. However, you can opt-out if you prefer.
When you work through an umbrella, you’ll be entitled to Holiday Pay and the umbrella legally needs to show this on your payslips. Please understand umbrella companies do not pay you Holiday Pay from their own pockets. Instead, Holiday Pay is calculated at 12.07% of your assignment rate and is reallocated as Holiday Pay. Therefore, you need to consider this when negotiating your rate with your recruitment agency, or direct with the end-hirer.
Umbrella companies have recently been in the press for the wrong reasons. An umbrella was accused of retaining accrued Holiday Pay. This is appalling, and if you ever suspect an umbrella you use is doing this, they must be reported immediately. However, don’t let this recent bad press put you off using an umbrella company. This type of malpractice is extremely rare. To ensure you pick a compliant umbrella company with your best interests at heart, we recommend using an FCSA or Professional Passport accredited provider.
The only source of income that umbrella companies generate for themselves is called the umbrella company margin. This is the only income umbrellas generate, and the rest of the deductions go to HMRC (or your pension provider, should you remain opted-in). The phrase “umbrella company fees” is misleading, as it implies there are multiple costs associated with umbrella companies. This isn’t the case.
Top 10 umbrella companies
Are you looking for an umbrella company you can trust? If you are, we can help. We’ve created a list of top 10 umbrella companies for you to choose from – and some have special offers at the moment! Please check them out