Important questions to ask umbrella company providers

If you have decided to join an umbrella company, there are dozens of options out there. Here we look at some important questions to ask potential providers.

Only consider legitimate PAYE umbrella companies

Before you start, it is important to know that the only way PAYE umbrella firms can compete with each other is on price (the weekly or monthly fee they charge to contractors), and customer service.

And importantly, whatever marketing claims you may read, they can all only reclaim the cost of legitimately incurred expenses (directly via the umbrella for things such as mileage claims, or via your annual self-assessment tax return).

Other non-PAYE umbrella-type schemes may promise you massive returns on your contracting income (‘85% net take-home pay’) and so on, but joining one of these schemes could open you up to a future HMRC investigation, penalties and considerable backdated taxes, so we always suggest contractors stick to only reputable PAYE umbrella schemes.

Questions to ask umbrella company providers

Here are some of the main questions you should bear in mind when comparing umbrella companies:

1. What is the umbrella company margin?

Often umbrella companies illustrate their fees on a post-tax basis, which may be misleading. Beware of companies which charge a percentage of the invoice value, as you could find yourself significantly out of pocket! Find out more in our guide to umbrella company fees and charges.

2. Background Information

Research the company’s history, establishment date, membership of industry bodies, and the number of contractors it currently serves. Search for the company name on contractor forums, LinkedIn and Google. This information can give you an idea of the company’s stability and reputation in the industry.

3. Technology

Find out what type of technology the company uses to handle payments and timesheets. Ideally, you should have access to an online accounting system that allows you to track the status of your timesheet submissions and expense claims in real-time.

4. Extra Fees

Ask if there are any additional fees involved, such as joining or leaving charges? In a competitive industry, additional fees are more of a rarity these days, but you ought to know the details from the start.

5. Compliance with Regulations

Surprisingly, umbrella companies do not have a regulatory body.

However, like all businesses, they must comply with a number of UK rules and regulations, including:

1. Pay As You Earn (PAYE) rules: Umbrella companies must operate a PAYE scheme to deduct income tax and National Insurance contributions (NICs) from their employee’s pay.
2. National Minimum Wage (NMW) and National Living Wage (NLW): Umbrella companies must pay their employees at least the NMW or NLW, whichever is applicable. This is unlikely to be a concern for contractors, but it’s still the law.
3. Agency Workers Regulations (AWR): Umbrella companies must comply with the AWR, which provides temporary workers with certain rights and protections after they have completed 12 weeks on the same assignment.
4. Working Time Regulations (WTR): This sets limits on working hours, rest breaks, and annual leave entitlements of employees.

6. Customer Support

Ask if you will have a named account manager to get in touch with for any questions, and to manage your payments.

This personalised support can be invaluable in creating a stress-free experience. It can be stressful if you have to re-explain a problem or query each time you get in touch with your umbrella.

Find out what the typical response times are, and the methods of support available (online chat, telephone, email, etc.)

7. Payment Process

Find out how payments are processed and the payment schedule. Ask if the company charges extra for same-day transfers. With the advent of Faster Payments, most major banks can make and receive payments on the same day for no extra cost.

8. Legitimacy and Compliance Audits

Some umbrella companies have given the industry a bad reputation in the past by encouraging contractors to claim illegitimate expenses. Ask prospective companies for details of any professional compliance audits they have undertaken to prove their legitimacy. The most frequently cited audits are provided by the FCSA and Professional Passport.

9. Insurance Coverage

Determine if the umbrella fee includes business insurance. Many clients require contractors to hold professional indemnity insurance as a minimum, so make sure that your specific work and skills are covered by any blanket policies offered by the company. Public and employers’ liability cover will typically be provided as standard.

Umbrella companies may also offer additional insurance coverage options, such as personal injury insurance, group life insurance, or group income protection insurance.

10. Additional Benefits

Ask about any additional perks or incentives offered to employees, such as pension provision, free vouchers, or referral commissions for recommending new clients.

Do you need a PAYE umbrella company?

If you’re looking for an umbrella provider, simply visit our umbrella company directory.

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