There are plenty of reputable umbrella providers out there – as well as (sadly) some unethical ones. With this in mind, here are 15 things to look out for when you compare umbrella companies.
Using an umbrella is one of the simplest ways to work as a contractor. It is a good choice if you don’t want to deal with any limited company admin, or you are contracting for a short period of time.
Some clients and recruiters now only take on umbrella workers for certain roles as a result of the Off Payroll changes since April 2021.
So you might need to choose an umbrella – even if you would ordinarily prefer to contract via a limited company.
Although the Government is currently consulting on how best to regulate the umbrella industry, it remains unregulated.
This means that some uncrupulous operators exist – setting up tax avoidance schemes, or carrying out salary skimming tricks via seemingly ethical PAYE schemes.
Here are our 15 tips to help you compare umbrella providers, and keep clear of rogue operators.
Compare umbrella companies – before you start
- Only use a UK-based PAYE umbrella company.
- Do not be influenced by tax-home pay figures which seem too good to be true.
- Remember that the net take-home pay between reputable umbrella companies should be exactly the same.
- The only difference in take-home pay between umbrella companies should be the margin/fee you pay for the service.
1. How much is the umbrella company margin?
Umbrella companies charge a fixed weekly or monthly fee for you to use their services.
Some, however, quote their net fee (after tax).
It is only possible to accurately compare umbrellas if you look at gross (pre-tax) margins.
Expect to pay something around £25 per week for a typical umbrella provider.
You can also find some good introductory offers – perhaps half price for the first month.
It is unusual to find a provider that charges a percentage of your invoices these days. This is rarely advantageous for the worker.
2. Are there any additional fees?
Does the umbrella charge an entrance or exit fee? Are there additional charges for anything else, such as same-day payments?
3. Tie-in period
Is there a minimum term, or a notice period?
4. Faster payments
How quickly does the umbrella pay its workers? Most umbrella companies use the Faster Payments method. Make sure you won’t be charged extra for same-day payments.
5. Introductory offer?
The umbrella market is fiercely competitive – especially since the implementation of the April 2021 Off Payroll rules for private sector contractors. Many of the leading providers offer initial discounted periods.
6. Is the umbrella company compliant?
As we mentioned earlier, umbrella companies are not regulated by an official body. This means some unscrupulous providers continue to target contract workers.
However, there are several organisations which provide rigorous audits of UK umbrella companies.
The FCSA is an industry-run body which undertakes audits on its members to demonstrate that they comply with UK tax law.
Members also sign up to a professional code of conduct. Most of the well-known names in the contracting world are FCSA members.
Professional Passport also provides professional audits to umbrella providers.
More and more umbrella companies now use payslip checking software – such as SafeRec – which makes sure that all payments are processed compliantly. This means that every payslip is audited in real time.
As employers, all umbrella companies must auto-enrol workers into a pension scheme, although employees are allowed to opt-out.
From April 2019, the minimum total contribution into your workplace pension is 8% of your gross pay.
This is split between employee (5%) and employer (3%) contributions.
Read more in our guide to umbrella company pensions.
8. Holiday Pay – rolled up or accrued?
One of the worst practices we have come across when it comes to ‘profiteering’ by unscrupulous umbrella companies is the practice of withholding holiday pay.
In simple terms, over the course of the tax year, some umbrellas put aside some of their workers’ income to use as future holiday pay. A decent umbrella should inform you if you have not used your full entitlement.
If the worker hasn’t used his/her holiday entitlement by the end of the year, some umbrella companies simply pocket the un-distributed funds.
This practice isn’t helped by a lack of legal clarity about the rules surrounding holiday pay, so contractors need to be vigilant to protect their unused holiday pay.
Always ask for details of the umbrella’s holiday pay policy.
Since January 2024, new rules have taken effect, which make rolled up holiday pay lawful. This means that you are paid a proportion of your holiday pay every time the payroll is processed. The umbrella can’t withhold or pocket any of the funds.
9. Expenses policy
New HMRC SDC rules were rolled out in April 2016. This change massively reduced the scope of most umbrella workers to claim expenses against tax.
In essence, this means that you can only claim for a limited number of possible expenses, such as mileage, training and accommodation.
And, if the way you work means that you’re under the ‘supervision, direction or control’ of your end-client, you’re unlikely to be able to claim for anything. Read more about umbrella company expenses.
If you’re told that you can ‘save tax’ by claiming expenses, be very wary.
10. Disingenuous marketing
Aside from unrealistic take-home pay claims, even compliant PAYE umbrella companies make unrealistic claims in their marketing material.
The term ‘IR35 compliant’ means nothing, as you can’t be caught by IR35 as an umbrella employee.
And the term ‘HMRC approved’ is equally non-sensical, as it implies some kind of special treatment (which doesn’t exist).
All umbrella companies must be covered by an employers’ liabilty insurance, by law. As a minimum.
Most providers have a group policy which also provides public liability insurance and professional indemnity. This is usually a requirement of end-client contracts.
12. Ease of Use
These days, access to a sleek online system is a must – for you to submit timesheets, view upcoming payments, and deal with expenses.
Bad technology is up there with poor customer service when it comes to contractors’ gripes about umbrella companies, so ask for a demo before signing up. Just to be sure.
13. Preferred Supplier Lists (PSLs)
Recruiters often maintain a list of ‘preferred suppliers’ – and sometimes insist that applicants only use a PSL umbrella.
Clearly, recruiters are often ‘incentivised’ for introducing contractors to umbrella companies. This means that financial reward may be more important to a recruiter than making objective recommendations.
If you don’t want to use an umbrella recommended to you by a recruitment agent, let them know that you would like to choose an alternative.
Unsurprisingly, this may be easier said than done. Especially if you’re new to contracting.
Find out more about Preferred Supplier Lists and common issues faced by contractors.
14. How are ‘Employment Costs’ accounted for?
There are a number of employer-related costs umbrella contractors should expect to see on their payslips.
These ’employment costs’ include:
- Employers’ National Insurance. Read more about why you pay this here.
- Apprenticeship Levy. Find out what this is here.
- Employer’s Pension Contributions (if applicable).
- The umbrella company margin.
These costs should be listed separately on your payslip, not rolled up into one generic entry, which could disguise extra costs being deducted by the umbrella.
The best way to find the right umbrella is via recommendations from trusted colleagues.
Umbrella company review sites can be a bit hit and miss. And well-known review sites famously protect paying clients by creative weighting of their ‘out of 5’ scores. Read our in-depth guide to umbrella reviews for more.
LinkedIn is a good place to start. Contractors famously give honest and frank feedback. And, as there’s nowhere to hide on the platform, representatives of out-of-favour umbrellas are unlikely to want to enter the discussion.
Comparing umbrella companies – further reading
Read these useful guides to help you further navigate the world of umbrella companies.
- Umbrella company reviews – can they be trusted?
- Umbrella company advantages and disadvantages
- Umbrella fees – how much will you pay?