If you are new to contracting, the various options for how you can get paid plus all the associated terminology can be a bit overwhelming. Today we will look to debunk Umbrella Companies – also known in the industry as “a brolly.”
Chances are if you have found your latest assignment via an agency, they want you to use a Brolly on their Preferred Supplied List (PSL). Contractors often ask us why brollies have these PSL’s and often it is either because those are the brollies who passed Due Diligence (agencies are risk averse and so need lots of assurances from brollies) or there is a commercial arrangement in place which benefits both parties.
We are often asked whether it is possible to use a brolly not on a PSL and our answer is always to ask that question of your agency first as there may be a chance a deal can be done. However. do think how far you want to go to force the issue because if you are prepared to walk away from the assignment and the agency wants to keep you happy, that puts you in a strong negotiating position.
Another question we get is “which Umbrella company on the PSL should I use?”. The answer to that is typically to
a) ask other contractors you know and/or friends for their experiences of brollies, then
b) perform your own due diligence on a few options. Google the brolly’s name and see what comes back. Searching “Umbrella Company” showcases a wide range of options, from the simple umbrella to the highly complex “enhanced” umbrella.
In previous years, the brolly model allowed you to add a couple of extra percent on your return via claiming for travel expenses, regardless of whether you incurred them or not. In response to this, HMRC issued rules in 2016 to curb this “abuse” – meaning travel and subsistence expense relief can no longer be claimed at source. Remember if you are a 40% tax payer then allowing for the necessary deductions and brolly fees, expect a return IRO 55%. You should be wary of any “Umbrella” promising you returns substantially higher than that.
What can you expect from your Umbrella company?
Once you have picked your Umbrella, what can you expect to receive from them? As your employer they will operate PAYE on your salary, they will process your signed timesheet and invoice your agency. Once your end client pays your agency, they pay onto your brolly who pay you. Whether there is a “pay when paid” approach or a fixed date each week/month for the salary run will depend on your Umbrella. This is what you are paying the fee for – someone to manage the hassle involved in invoicing, credit control and make deductions at source.
As your employer the brolly also provides you with statutory rights such as wage slips, sick/holiday and/or maternity pay and this should be in your Contract of Employment. Each brolly should also have their own policy around pension contributions and other such benefits so important to read the small print. There should be no cost associated with leaving an Umbrella’s employment if you wish and they will produce you a P45.
Charges to use an Umbrella will vary, but on average expect to pay around £15-25 per week if you bill weekly. This figure will flex slightly if you bill monthly
For anyone new to contracting, an Umbrella is a good first step into the world of freelancing as it represents a balance of having a degree of independence but also being part of a bigger team if something ever went wrong.