In recent years, more people have transitioned from traditional employment to temporary work. Unfortunately, as the number of umbrella companies rises, a minority have also appeared that like to bend the rules. So, if this your first time working with an umbrella company or even if you are looking at changing to different one, here’s a small guide to help you.
Check if they are a genuine employer
Firstly, any compliant umbrella company will provide you with a contract of employment within your registration pack, this will give you the same access to all the rights and benefits that normal employees would receive including sick pay, maternity/paternity pay and holiday pay.
If you register with a company that does not provide you with a contract of employment, then there is a good change you will not be entitled to the rights/benefits above. This is why it’s necessary to check the provider is compliant & a genuine employer who will provide you with all the benefits that being their employee offers.
Your Take-home pay
The more crucial bit is your take-home pay, specially making sure that you choose a fully compliant umbrella company. Mistakenly using a company that is running a tax avoidance scheme could end up with you being left holding a large tax bill.
The best way of spotting a non-compliant company is when they are offering you a remarkably high take-home compared to other companies. For example, a non-compliant company may promise you take-home earnings such 80 – 90% of the total funds they receive.
Review Their Payment and Expense Policies
When starting with an umbrella company we believe it’s essential for you to check payment process. For example, ask, “When would I normally receive my payment?”
After all, you don’t want to spend time chasing payments for your hard work.
Additionally, be sure to understand their expenses claim process as well. Compliant providers will recommend that you keep track of your receipts for audit purposes and only accept legitimate claims.
In contrast, less compliant companies may allow invalid claims in an effort to give you more money upfront, but this could lead you into trouble if HMRC decides to investigate.
Keep in mind that the types of business costs and expenses you can claim can depend on the specific assignment you’re engaged in and whether it falls under supervision, direction, or control (SDC).
Margin/Fee Structure
Umbrella companies charge a margin for their services, which is deducted each time a payment is processed and is normally included in the rate of pay they receive.
The amount of the margin can vary depending on the company you choose. It is important that you are aware of this fee, and it should be clearly shown on your pay summary.
Compliance
To most people the boring part however choosing a compliant umbrella company is essential making sure that you are paying the correct tax contributions and reporting this to HMRC.
The best way and easiest way to spot a compliant company is checking if they hold any accreditations for example here at Kanopi Contract Services we are verified by veriPAYE to provide real time auditing of all our PAYE umbrella payments.
We also partner with Diligence Hub; this is a secure portal that enables umbrella companies to provide their due diligence information to other parties in the supply chain.
Mini Umbrella companies
In recent times, there’s been a rise in non-compliant companies who are known as “Mini Umbrellas”. These companies use employment allowances and multiple limited companies to enable tax fraud. Further details on how to spot this kind of scheme can be found here: Mini umbrella company fraud – GOV.UK
HMRC do not run any accreditation service or offer a tax-free service you can use to receive your payments.
Reputation
When selecting an umbrella company, it’s important to consider their reputation, meaning you should value what others are saying about it rather than relying solely on its own self-promotion. If you’re working with a recruitment agency, chances are they’ve engaged with multiple umbrella companies and conducted thorough due diligence, so they might be able to recommend a reliable option for you.
Conclusion
Before choosing an umbrella company, ensure you:
By carefully evaluating each of these areas, you can confidently select an umbrella company that offers both security and fair financial returns.
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