The Benefits of an Umbrella Company
It is important to understand what benefit an umbrella company can offer you as a contractor.
More and more people are beginning to realise that a 9-5 job is something of the past. Contractors and freelancers are increasingly viewed as valuable assets within a company instead of mere replacements when permanent staff aren’t available.
An umbrella company acts as an employer to freelancers and contractors and provides a payroll services to you, the contractor.
Umbrella companies are a perfect solution for someone that charges a lower hourly rate compared to someone who works through a limited company, are typically on shorty-term contracts and prefers not being burdened with the administration typically associated with a Limited company.
What are the benefits for contractors?
1. You don’t have to deal with any of the admin, freeing up more of your time.
2. You can claim business-related expenses, lessening your tax payable and increasing your take home pay.
3. The umbrella company ensures that the correct tax and National insurance is paid to the HMRC.
An umbrella company is a great opportunity to find your feet in the contractor industry and allows you time to decide whether a career as a contractor or freelancer is right for you.
There are also no contractual commitments. If you feel that an umbrella company doesn’t suit your needs after using it for some time, you can resign from the service. Depending on the umbrella company you use, there should be no resigning fee. It’s as simple as that.
What are the benefits for your agency?
The benefit for the agency is that they don’t have to deal with payroll, as your umbrella company handles this for them.
Your agency will send over the relevant registration information to your umbrella company. On completion of your setup your umbrella company will start paying your salary, taking into account your correct tax and NI as well.
How to choose the right umbrella company
Be sure that the umbrella company you are considering is up to scratch, before registering for their services.
It is important to do some market research before you register with an umbrella company. Consider the following things when deciding what umbrella company is best for you:
1. Reputation
A solid reputation is key.
Search online for information about the umbrella company you are considering and see what others have to say about it. Speak to a number of longer-established contractors about their experiences with umbrella companies, as this will give you a good indication of umbrella companies with proven track record.
2. Experience in the industry
Be wary of companies that have just started out. Choose a company that has been operating for several years.
3. An understandable payment policy
Make sure that the umbrella company you are considering has fixed payment dates you can rely on.
Find out what the payment methods and schedules are – so you can familiarise yourself with their payment policy.
4. A transparent fee structure
Establish up-front what their fees are.
Make sure that there are no joining fees and no resignation fees. Remember; make comparisons before deciding which umbrella company you are going to choose.
5. Insurance cover
Always ask about the insurance policy in order to ensure you receive your money should the umbrella company go bankrupt.
Typical umbrella companies have public liability, employers’ liability and professional indemnity cover.
If you would like to know what your take-home pay would be as a contractor, use 1st Contact’s umbrella company salary calculator to find out.
This article was provided by Pieter Carstens, manager of 1st Contact Umbrella – market leaders in payroll services for contractors. 1st Contact is an expert tax, financial and migration group that strives to bring a refreshing approach to finance and migration to people working and living in the UK.
To find out more about their services, visit 1st Contact.
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