The modern workplace is more dynamic and flexible than ever before, and the contract market continues to grow and evolve. However, if you are working on multiple or short-term assignments instead of permanent employment, ensuring you are getting paid correctly and keeping on top of statutory contributions can be both confusing and time-consuming.
Umbrella companies are not new but if you’re new to contracting you may not know much about them and how they operate. If you’re not sure what they offer, or how to make sure you choose safely, here’s some answers to questions we’re often asked.
What is an Umbrella Solution?
This is where an Umbrella Company becomes your employer and acts as an intermediary between you as a contractor, your agency and end client. The Umbrella Company has the principle function to provide payment to you whilst dealing with tax and national insurance as a standard employer would.
Why are more contractors opting for the Umbrella Solution?
Legislation and expectations are constantly evolving for contractors. As a contractor on multiple short-term assignments, being paid through an Umbrella Company frees up from the time-stealing admin and potential regulatory pitfalls of tracking, claiming, chasing, checking and completing your pay and tax responsibilities.
Whether you are contracting directly with clients or via a recruitment agency, getting under an Umbrella is increasingly the ideal option for a contractor just starting out, those on shorter-term contracts or within a role deemed as inside IR35.
I’ve heard some employers insist on Umbrella payroll- is this right?
There is no legislation which requires contractors to be employed through an umbrella company, but, increasingly, it is also becoming the preferred payment option for agencies and end clients. This is because, just as with you, it gives the reassurance of regulatory compliance.
Umbrella companies have existed for about 20 years and are now becoming such sector-wide preferred means of payment. Some contracts now include umbrella payment as part of their mandatory terms of employment. Being left on the back foot could increasingly mean missing out on contracts and opportunities.
Do I lose pay by going through an Umbrella company?
Exact calculations can depend on your sector, type of assignment and Umbrella contract. Established, reputable Umbrella Company packages include many benefits in addition to seamlessly administering your pay and tax affairs, such as access to statutory employee rights, expenses, holiday pay, sick leave, maternity, paternity and pension benefits.
Are there any risks?
Being paid through an Umbrella Company should reduce risk, giving you the security of seamless PAYE and tax compliance. However, with the increase in popularity of Umbrella solutions, sadly there are unscrupulous companies in the market promoting attractive but non-compliant solutions to the temporary labour market, in reality benefitting only themselves.
Since these are achieved by the company failing to pay the correct employer or employee contributions to the government, this leaves the contractor at risk of ending up with a huge bill for unpaid taxes and potential litigation from HMRC.
How do I trust an Umbrella Company to be legal and trustworthy?
Do not panic! There are many established, ethical and compliant Umbrella Companies, who will provide you with a clear contract of employment, all statutory rights and benefits, and full transparency in how your pay and taxes are calculated.
Recognising the requirement for oversight of this growing field to eliminate fraudulent providers, a consultation process is underway for proposed government regulation of the Umbrella Company market. Even before this is passed into law, choosing an Umbrella Company accredited by the Freelancer & Contractor Services Association (FCSA), the UK’s leading membership body dedicated to ensuring the highest standards for the freelance and temporary labour market, is your assurance of professionalism, trustworthiness, transparency and accountability.
How do I find a compliant Umbrella Company?
Check they’re FCSA Accredited by visiting the FCSA website.
Here you will find a list of all Umbrella Companies who have passed the FCSA’s rigorous and stringent Umbrella Company assessments, carried out annually by independent, nationally renowned professional service firms.
Can ICS Umbrella help you?
ICS Umbrella provides workers with all the benefits of being an employee by employing them whilst working on various assignments. You may continue to use ICS Umbrella when you change assignments or restart after a break from working. We are FCSA Accredited and have been since 2017.
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