What is an umbrella company?
An umbrella company is effectively the middleman between an umbrella contractor and their client.
The umbrella employs a temporary worker on behalf of an employment agency and the agency will then provide the services of the worker to their clients.
It’s a self-employed route ideal for those who want more flexibility with a better work-life balance, but don’t want to deal with the admin that comes with being a limited company contractor or sole trader.
How does umbrella company pay work?
For limited company contractors or sole traders, they will need to file an annual self-assessment tax return that will include all of their financial information from the last 12 months. These records will be sent to HMRC, which will notify the worker of the amount of tax they owe, which will need to be paid by the 31st of January.
For an umbrella company contractor, this is a much simpler process due to the fact that they are employed by the umbrella, and therefore paid the same way as a permanent worker.
The umbrella will give the contractor their payslip; paying for the work completed and deducting any income tax or National Insurance Contributions (NICs) due, as well as administration costs.
Your payslip will include your contract pay (before and after any deductions), the number of hours you’ve worked and the amount of deductions.
Are umbrella company contractors entitled to holiday pay?
As mentioned previously, umbrella contractors are employees of the umbrella, which means that they have similar benefits to other permanent workers – such as holiday pay.
The amount of holiday may vary depending on the end client, however, umbrella company contractors are entitled to a minimum of 28 days of annual leave/holiday a year (including bank holidays).
There are two different options when it comes to receiving holiday pay.
You can either:
- Choose to be paid in advance – this will be paid alongside your weekly or monthly pay.
- Accrue your pay – if you request this option then your holiday pay will be safely kept within a ‘pot’ by your umbrella company for you to reclaim whenever you decide to take annual leave. This is handy if you find yourself in between contracts and want to use your holiday pay for this period.
What should I look for in an umbrella company?
If you want to go down the umbrella route, then it’s essential that you do your research and pick a good company; one that will provide the best possible service and can be trusted.
Here’s what to look out for when choosing an umbrella company:
- Having a personal touch
Ideally, it’s best to pick an umbrella that provides you with your own go-to person, so that if you have any queries or issues they can be resolved quickly. - Good reviews
Whether it’s word of mouth or doing your own research, it’s important to know what people are saying about a company. - How long have they been in business for?
The longer an umbrella company has been in business, the better, simply because this means that they have plenty of experience, which in turn should make them experts in their field, which can only benefit you! - Do they have any awards?
Being recognised for their achievements in the sector is most certainly a comforting factor when it comes to choosing an umbrella company.
Take a look at our Advice on Choosing an Umbrella Company page for more information on this.
We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.