Comparing Umbrella Companies: A Limited Company Contractor’s Guide

As a limited company contractor, choosing an umbrella company for the first time can be a confusing and often daunting process – especially if you are unfamiliar with the umbrella payroll model. Our short guide looks at the main factors to consider when deciding which umbrella company to use.

The margin

The only factor that will differentiate your take home pay between compliant umbrella companies is their company margin. The margin covers the cost of processing your payroll and the associated administration. All you need to worry about as an umbrella employee is submitting your signed timesheet each week via your umbrella company’s app or portal.

Most umbrella companies will either use a fixed-fee weekly or monthly margin or a percentage model based on your earnings. Percentage fee models can quickly become more costly the higher your earnings are, so always check which system the umbrella company uses.

You can expect to pay around £20-35 per week for a fixed-fee umbrella service.

The speed of payment

Once you submit your timesheet to the umbrella company and your agency sends them the funds, how long will it take before you receive your money? This is an important point to consider and you should always ask whether they use BACS, CHAPS or Faster Payment transfers as this will determine your payment frequency.

Here is a breakdown of each payment method:

• BACS – this stands for Bankers Automated Payment System. This used to be the most frequently used payment system; once payment has been made it should reach the contractor’s bank account within 3 working days.
• CHAPS – this stands for Clearing House Automated Payment System. Payments made via CHAPS should reach the recipient on the same day if certain cut-off times are met, however this can incur an additional charge. CHAPS is often used for high-value transactions or transactions that have a strict or limited time limit.
• Faster Payments – payments made via faster payments can be made 24 hours a day, 7 days a week. This is the preferred payment method used by many umbrella companies. Once the umbrella receives funds from your recruitment agency, you will be paid the same day after tax and NI deductions are made.

Churchill Knight Umbrella operates via Faster Payments. Find out more about the benefits you get with our umbrella payroll service.

The level of insurance cover

It is a legal requirement for umbrella companies to include Employer’s Liability Insurance to protect you if you become injured or unwell at work. Most compliant umbrella companies will also have Professional Indemnity Insurance and Public Liability Insurance to meet end client requirements for insurance coverage before beginning an assignment.

Professional Indemnity Insurance offers protection if somebody claims you have not carried the appropriate level of service as agreed. It also serves as protection for any damage or negligence claims made against you.

Public Liability Insurance is not a legal requirement but is useful for umbrella companies because the majority of the contractors on their books will come into contact with the general public. Public Liability will protect the umbrella company if claims are made against you as a result of damage caused to the property you are working on or in, or if there is a personal injury during your assignment.

Compliance and accreditations

Always look for an accredited umbrella company to ensure they have met certain industry standards, are compliant with all UK tax law and abide by legislation that affects the contractor industry. The two main accreditations you should look for are FCSA and Professional Passport.

Expenses procedure

On 6^th April 2016, HMRC brought legislation into effect which restricts the expenses that umbrella company contractors can claim (for tax relief). Most umbrella companies will no longer allow employees to claim expenses due to supervision, direction and control (SDC).

Are there any joining or leaving fees?

Some umbrella companies will charge you an additional fee for signing up or leaving their service. Always check before signing a contract whether you will incur an additional cost.

Tie-in period

Some umbrella companies have a tie-in period which locks you into using their payroll service for a specific amount of time before you can leave. Some umbrella companies also require a notice period which you must adhere to if you intend to leave the service.

Pension enrolment

It is a legal requirement for umbrella companies as your employer to enrol you into a pension scheme. You will be automatically enrolled after 12 weeks of being employed by the umbrella company; check which pension provider they use and whether you are happy to use them. If not, you can opt-out and make private pension contributions if you wish.

The online portal

Umbrella companies should give contractors access to a secure, online portal where they can access their payslips, submit their timesheets and submit queries. A portal is often more secure than sending an email or a paper-based timesheet and you can instantly see the progress of your submission.

Statutory benefits

Similarly to permanent employees, as an umbrella employee you will also get statutory benefits such as Sick Pay, Maternity and Paternity Pay and Holiday Pay through an umbrella company.

Holiday Pay Explained

When you sign up to an umbrella company you are entitled to holiday pay – similarly to permanent employees. Most umbrella companies will pay contractors holiday pay each week or month along with their basic pay. However, it is also possible for your holiday pay to be accrued and paid in a single lump sum if you decide to take a holiday or wish to spend it on a rainy day. Holiday pay is worked out at 12.07% of your hourly rate.

Under the Working Time Regulations (WTR), holiday pay cannot be included in basic pay and umbrella companies must show basic pay and holiday pay as separate entities on a payslip. Therefore, your holiday pay is simply a re-allocation of your money and it is never deducted from you – unless you request for it to be accrued.

Contact Churchill Knight Umbrella for more information about the statutory benefits you are entitled to when working through an umbrella company.

Make sure the umbrella company has a good industry reputation

Your time is valuable and you don’t want to spend hours on the phone chasing a payment. Always check that the umbrella company you want to use has a good reputation online. Alternatively, you can speak to colleagues and ask for their recommendations for umbrella companies.

Speak to one of our friendly consultants about Churchill Knight Umbrella

Working through an umbrella company is considered the easiest way for contractors and freelancers to get paid. If you are unsure how an umbrella company works or require further information about moving from a limited company to an umbrella company, please speak to one of our consultants who are happy to explain our service to you.

Call us on 01707 871622 or request a call back for a time that suits you.