[This article was written by Rob Crossland, the Service Director of the Umbrella Company Parasol IT Plc]
Introduction
Once you have been offered a contract you will need to decide how to structure your payments. There are two routes:
- Using an umbrella company (or employee management service company).
- Forming your own limited company.
Further to our article about choosing an umbrella company, this article discusses the top issues to consider when comparing umbrella companies.
Take Home Pay
Many umbrella companies quote a percentage “take home” of your gross pay. This percentage will depend on the level of expenses you claim, your IR35 status and the type of umbrella company you use – PAYE or composite.
When comparing these figures be sure to check that the expense figures reflect your personal situation. Be wary of quotes with overly pre-loaded expense figures as they may not reflect your personal situation. The opposite may also be true in that you can claim more expenses than a standard sales calculation.
It is always advisable to be clear on what expenses you can claim and how this relates to you. Make sure you thoroughly check all calculations.
Trust
When you join an umbrella company you are either becoming a pseudo employee or, in the case of composites, a director. Unlike a “real” employer the umbrella company is there to carry out your administration and be trusted to pass on your earnings, rather than provide gainful employment and all that entails.
You must therefore trust the umbrella company to pay you on time in the most tax efficient way the law allows.
Some key questions are:
- How long in operation?
- How many ACTIVE contractors do they work with?
- Are they members of the PCG, ATSCO or REC?
- Do they have a client account for safeguarding funds?
Inclusive Features
Do the “features” offered by the umbrella company include all that you need in your contract? Not all umbrella companies provide the same features and facilities.
A checklist might include:
- Are there any start up costs?
- Do you get charged if you decide to leave that umbrella company or are you mandated to minimum fee levels?
- Is Professional Indemnity included (should be) and at what level? Can they produce evidence of this and Employers and Public Liability certificates?
- Expense dispensation in place? [See article on dispensation]
- Do they hold any of your income back for any reason?
- Can they company do a same-day (CHAPS) for urgently monetary requirements, and how much does it cost?
Some of the above may seem onerous for a short term contract (if that is the reason you are using an umbrella company). However, if there are problems then it is more likely that the individual will face them.
Service Levels
Some questions could include:
- What service levels does the umbrella company adhere to?
- Are they a “preferred supplier” to your Agency?
- How often do they process your payments and how will this affect you personally?
- How often can you claim expenses?
Fees
Some companies quote a fixed fee (e.g. £10 per week), whilst others quote a percentage of your gross pay (e.g. 5%).
To remove the complication of fee structures it is easier to compare the take home pay.
Charges vary between the companies, as do the features they offer.
Always check what inclusive features you get and what might be missing!
What are your obligations?
Some umbrella operations operate completely online facilities whilst others don’t.
Some considerations:
- Will you have to enter timesheets?
- Who will send the invoices?
- Does that relate to your Agency requirements (if known)?
Conclusion
- When comparing quotes, ensure you compare like with like.
- Understand what you are getting for the fees being charged, and what you aren’t.
- Understand your obligations and ensure they align with the requirements of your agency.