Compare Umbrella Companies: How to Choose the Best?

An umbrella company act as an employer for contractors, allowing them to work on contracts while mitigating the administrative responsibilities of running their own limited company. Joining an umbrella company means becoming an employee of that company, rather than being self-employed. Contractors receive gross pay, and the umbrella company handles tax deductions, including income tax and national insurance contributions (NICs), according to the HMRC's PAYE (Pay As You Earn) scheme.

Before diving in, assess whether an umbrella company aligns with your needs and preferences. Consider your work style, financial goals, and long-term career plans to determine if this employment route suits you.

Comparing umbrella companies is crucial for securing the best deal. It impacts your take-home pay, compliance with regulations, and overall job satisfaction. With different companies offering various services, fees, and benefits, it's essential to conduct thorough research to make an informed decision.

1. Compliance:

Compliance is of utmost importance when choosing an umbrella company. It's important to choose an umbrella company that is compliant with the UK tax law to avoid penalties and legal issues. When comparing umbrella companies, consider how they handle tax deductions, including income tax and national insurance contributions (NICs).

Tax avoidance is an issue of concern for both contractors and umbrella companies. Ensure the umbrella company you choose operates ethically and does not engage in tax avoidance schemes. By choosing a compliant umbrella company, you can work with confidence, knowing that your tax obligations are being met and that the company is acting within the boundaries of the law.

2. Customer Service and Support

When evaluating service aspects of umbrella providers, one should consider the quality of customer support provided and the range of services offered. A particular umbrella company with excellent customer support and a wide range of service offering can positively impact an individual’s experience as an employee of the umbrella company.

Contractors rely on quality customer support to address their needs. It's important to ensure that the umbrella company offers top-notch customer service. Assessing the response time of customer service is crucial in making the right choice. Responsive customer support greatly benefits contractors, allowing them to address any concerns promptly.

3. Knowledge and Expertise

The legislation affecting contractors and freelancers keep changing very often and are complicated to understand. It is vital to use a company that operates ethically and is knowledgeable about legislation and how it affects you. For example, advice on IR35.

Assessing knowledge about specific industries can also set umbrella companies apart, ensuring they understand the unique requirements of different sectors.

4. Experience in the Market

When evaluating umbrella companies, it's crucial to seek those with extensive industry experience and a proven track record of adapting to market changes. Consider the company's reputation, client testimonials, and understanding of market fluctuations and compliance. Analyze their track record and years of operation to gauge their expertise.

5. Umbrella Company Fees Comparison

When considering umbrella companies, it's crucial to evaluate the umbrella company fees in relation to the services offered. Look for transparency in fee breakdowns and possible additional charges. Opt for umbrella providers with competitive fee structures that align with your take-home pay. Evaluate how the fees impact your overall earnings and consider if the value of services justifies the costs.

6. Payment Methods

How quickly does the umbrella pay its employees? Also check how often they run payroll in a week. When assessing umbrella companies, it's crucial to consider the payment methods and payment frequency offered. This will help you determine how quickly you will be paid after submitting your timesheets. Most umbrella companies use the faster Payment methods to make payments available in your bank the same day. Make sure you are not charged extra for the same day payments.

7. Insurance Coverage

Assess the umbrella provider's public liability insurance coverage and professional indemnity insurance provisions. A good umbrella company often gives you free employer's liability insurance, which is required by law. This insurance is crucial in case you get sick or injured while working. The amount of coverage can differ from one provider to another. Additionally, it's common for the company to have professional indemnity and public liability insurance. Even though these insurances aren't legally required, many end clients insist to have them.

8. Pension Schemes

When assessing pension schemes available, it's crucial to evaluate workplace pension options and consider contribution rates and employee entitlements. Umbrella companies must auto enroll employees for a workplace pension after 12 weeks of continuous employment. You don't have to use the company's pension scheme, and you can choose top opt out.

If you already have a pension that you want to keep contributing to, check if the umbrella company provides salary sacrifice. With this, you can take a slightly lower salary, and the company will put the difference into your existing pension.

9. Holiday Pay

Some umbrella companies might add 12.07% extra of your gross salary to cover your annual leave, while others expect you to take your statutory annual leave.

Since January 2024, the government officially recognizes 'rolled-up' pay, where you get holiday pay in advance. Each time the payroll is processed, a portion of your holiday pay is included. The umbrella company cannot keep or use any of these funds.

Check with your umbrella company to see which approach they use and how it affects your final payslip.

Remember, an umbrella company is legally required to pay you statutory sick pay after 4 consecutive days away from work.

10. Umbrella Company Expenses Policy

Since April 2016, HMRC has made strict rules about what expenses you can claim through an umbrella company.

You can only claim a limited number of expenses, like mileage, training, and accommodation. Also, you can only claim them if you incur them 'wholly and exclusively' for your job.

If you’re under your client’s 'supervision, direction, or control', it's unlikely you can claim for anything.

Be cautious of umbrella companies promising big tax savings through a wide range of expense claims. If it sounds too good to be true, it probably is.

11. Misleading or Meaningless Claims

Some umbrella companies make claims that might sound good, like being HMRC-approved or IR35-compliant. But these claims are actually meaningless.

The term "IR35 compliant" doesn't mean anything because as an umbrella employee, because when you work through an umbrella company, your pay and taxes are managed like an employee and thus, you can't be caught by IR35.

The term "HMRC approved" is equally confusing because HMRC can't approve umbrella companies.

12. Preferred Supplier Lists (PSLs)

Recruiters often have "preferred supplier list"' to help you pick the right umbrella company. To be on this list, an umbrella company typically needs an FCSA or Professional Passport accreditation and must pass the agency's compliance check to ensure they're safe to work with.

Remember, you aren't legally required to choose an umbrella company from your agency's PSL. If your agency is pushing you to use a specific one, always ask them why. You have the right to understand and make the best choice for yourself.

13. Ease of Use and Accessibility

When considering umbrella providers, ease of access to the online portal is crucial for users. It allows you to submit timesheets, check upcoming payments, and handle expenses smoothly. A user-friendly platform with efficient navigation is indicative of a particular umbrella company's commitment to quality service. Access to information on employee benefits, tax deductions, and NI contributions should be readily available.

14. Online Reviews and Recommendations

The best way to understand how good an umbrella company is comes from recommendations by other contractors. A quick search on Trustpilot or Google for the umbrella company you're interested in will show you all the positive and negative feedback from contractors who have used the service. Pay close attention to the particular umbrella company's reputation and overall number of positive reviews.

Keep in mind that umbrella company review sites can be a bit unpredictable. Some well-known sites might give higher scores to companies that pay for their services. A more reliable way is to ask your network or seek advice in professional groups. They can give you firsthand experiences and honest opinions.

15. Introductory Offers

Some umbrella companies give discounts or no fees for the first few weeks. If you're new to contracting, this is a good way to try things out without a big financial risk. But remember, the fees will go up eventually. Check what the fees will be once the introductory offer ends. Also, make sure there are no hidden fees you didn't know about. It's essential to be aware of all the costs involved.

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When comparing umbrella companies, it is crucial to consider various factors to ensure that you make an informed decision. While choosing the right umbrella company is crucial, don't overlook the importance of having reliable contractor accountants. They can provide tailored financial advice and ensure your accounts are in order, offering peace of mind as you navigate the contracting landscape. Make informed decisions, both in your employment structure and financial management, for a successful contracting career in the UK.