When contractors are choosing from the many umbrella companies on the market, comparing prices is one of the most important considerations. However, what’s advertised doesn’t always reflect the true cost and contractors often find that there are unexpected costs.
In fact, some companies selling umbrella solutions are merely masking structures and tax solutions that will not meet a contractor’s actual requirements. When choosing, it’s important to consider the following things.
Are you the company’s employee?
When joining an umbrella company, make certain that the contract you are offered is an employment contract. If you are joining a real umbrella company, then the contract will make it clear that you are a permanent, legitimate employee of the business.
Some umbrella companies may not even send an employment contract when you join. It is thought that this gives them more leeway on employment rights. Upon joining, you should receive a letter of engagement, followed by a full contract of employment with a minimum of 336 hours per year at or above the legal minimum wage.
Look into their background
Ordinarily, an umbrella company will be UK-based and have a solid trading history. However, you should not take this for granted. Always look into how long the company has been trading and the kinds of services it offers, for example, if it moves money offshore, it is more likely to be a tax solution company, rather than a genuine umbrella company.
How much are the fees and what are they for?
As an umbrella company employee, you will normally pay weekly or monthly fees. It is vital, however, to look into the fees, rather than just accepting them. Firstly, ensure that the fees quoted to you are gross and then look at what they do and don’t cover.
Many calculations of net pay will involve high levels of expenses, so, depending on your situation, you’ll need to check that the sums you are quoted actually apply to you.
You should also be wary of umbrella companies advertising their services as “free”. While this is occasionally offered by companies looking to, for example, grow their market share, it’s important to consider how and why the services could be free.
Finally, many umbrella companies pay incentives to agencies that recommend them to contractors. When applying to a company that you’ve been recommended, you should ask whether they pay commissions and, if so, how much. More often than not, the cost of these incentives will be coming out of your end.
Expenses
It is possible that a less reputable umbrella company will say in its marketing that it has special dispensation which means that its contractors don’t need to keep their receipts and records to claim expenses.
However, what dispensation means is merely that the company doesn’t have to complete a P11D for each employee. Keeping your receipts is vital and failure to do so could land you in trouble with HMRC. Umbrella companies that claim you don’t need to keep receipts should be avoided.
Leaving penalties
When signing a contract with an umbrella company, always check both the notice period given and potential penalties that might be incurred for leaving before completing this notice period.
Under the terms of certain contracts, leaving before the notice period has been served could be considered gross misconduct and could lead to you facing penalties. This might potentially complicate things for you should your work situation change and you want to leave the umbrella company.
