Why use an Umbrella company to payroll your contractors?

January 23, 2020


Using an Umbrella company is a brilliant way to allow contractors to continue in their roles after the IR35 legislation comes in from 6th April. However, choosing a reputable Umbrella company is incredibly important as they will essentially be your employer, so it’s worth doing your due-diligence and making the right choice!  But what is an Umbrella company, how can they help you and what questions should contractors ask?

What is an Umbrella company?

They are an organisation set up to allow contractors to be paid as a PAYE employee. The Umbrella Company will employ the worker and cover all benefits such as SSP, maternity pay and employment rights.

When a contractor uses an Umbrella company, they will receive the same benefits of a normal employee, but they can continue to work on a contract basis

How does an Umbrella company help businesses?

Using contractors is a great solution for any business that needs a highly skilled worker for a project or if you have any seasonal peaks that mean you need to increase your staffing. However, paying contractors is a headache, so an Umbrella company can pay the contractors PAYE so that you don’t need to run your own Payroll. In addition, you won’t need to manage any legal or compliance issues associated with employing contractors as the Umbrella company does that all for you.

Specifically, what does an Umbrella company do?

  • Pays the contractor via PAYE – removing IR35
  • Provides the employee with SSP, maternity and other employment rights
  • Arranges holiday pay which can be taken as a percentage of their income when the contractor needs it
  • Provides contractors with free Employers Liability insurance to £10m, Public Liability insurance to £5m and Professional Indemnity to £2m
  • Allows contractors to benefit from a Privilege Scheme

Should I use an Umbrella company?

If any of the following apply to you, we think it would be a good idea to use an Umbrella company:

  • Contractors starting up who expect to work on multiple assignments through an agency for the foreseeable future
  • Contractors who are subject to IR35
  • Contractors who do not want the additional administration and financial concern involved with running their own limited company
  • New contractors who think they may struggle with the responsibilities of running their own company
  • Contractors who want to avoid the costly process of forming a company and then arranging for it to be dissolved

What questions should I ask an Umbrella company?

Your Umbrella company will be your employer, so do some research about whether they are a good fit for you or not, as you would if you were taking out a permanent role. Some places to start are:

  • How long has the Umbrella company been in business? Check them out on Contractor forums, see if they’ve got any accreditations and look at the preferred supplier lists they’re on.
  • Will you get a genuine contract of employment? As you will be an employee of the Umbrella company, you will want an employment contract that sets out the terms of your employment, just as you would if you had a permanent role.
  • What is their margin? An Umbrella company is obviously providing you with a service so will want to take a margin to cover the cost. Make sure there are no hidden costs and beware if a deal is too good to be true. Only work with an Umbrella company that provides transparency with their costs.
  • Will they be easy to work with? Obviously, you will want reassurance that the Umbrella company can answer your queries when you need them. Double check any joining costs and the minimum length, there is no cost to join or leave the service or minimum length they must use us.

When comparing Umbrella companies, what should I look out for?

•             Joining and leaving fees

•             Insurances not included in the given quote

•             Margin fee (as an example for every £100 earned charge another £6)

•             Part Pay Part Loan (avoiding paying tax and national insurance)

About EdenGroup

EdenGroup offers a flexible Umbrella employment solution for contractors. We provide you with the best possible individual service so that you can concentrate on your current assignment (or start planning your next one). Find out more about EdenGroup on our website.

Find out more about how EdenGroup could provide you with a brilliant Umbrella service, get in touch with Beverley on 01276 688032 or bstanding@edenoutsource.co.uk