The number of umbrella company schemes available to UK contractors is growing. In fact, the industry has expanded swiftly over the past 10 years. For both new and established contractors, finding a business structure that allows them to maximise the advantages of contracting is vital, becoming an umbrella company employee has been a popular choice for a long time.
According to Acas, an umbrella company can be defined as an organisation that acts as an employer to a contractor. An umbrella company facilitates a three-way relationship between itself, the contractor and the client to ensure contracts can be fulfilled as quickly and conveniently as possible.
Although they’re often compared with limited companies, umbrella companies unlock their own advantages, providing a proven business structure that many contractors rely on today. Read on to discover the benefits of using a PAYE umbrella company and become one step closer to discovering whether this popular business structure is right for you.
An affordable way to work for contractors
Both limited company contracting and contracting via an umbrella company come with their costs. Becoming an employee of an umbrella company incurs a weekly or monthly fee, usually charged at a margin.
Joining an umbrella company may also come with additional charges that contractors must be aware of. Selected umbrella companies charge fees for signing up, exiting the scheme, insurance cover, processing same day payments and managing expenses. Shopping around and comparing umbrella companies ensures you can find the best value umbrella scheme for your money and uncover any hidden fees in the process.
All legal, tax and admin duties taken care of
For those unsure of how to handle the added responsibility of fulfilling legal, financial, and administrative duties, umbrella companies offer a vital lifeline. You get a lot for your monthly or weekly fee. Whilst working via a PAYE umbrella company is far less tax efficient when compared with limited company contracting, the miniscule amount of admin, zero legal duties, and full management of tax and National Insurance (NI) contributions guarantees a good trade-off for most. You’ll also receive many benefits limited company contractors don’t, including holiday pay, as detailed here by Contract Eye:
“As your employer, the umbrella company has certain legal obligations to protect its employees – and one of these duties is to ensure that you are paid when you take time off. Since April 2009, all PAYE employees are entitled to 5.6 weeks paid holiday each year. This amounts to 28 days for umbrella contractors – 5.6 times the standard working week of 5 days = 28 days. It is up to the employer whether or not bank and public holidays can be included within this 28 day limit. If you work fewer days per week, or for six months out of the year, for example, your holiday pay entitlement will be calculated on a pro rata basis.”
Again your monthly or weekly fee will cover the expenses incurred to provide holiday entitlement, meaning you can book your summer holiday without the hassle of wondering whether you can afford to take time off work. As you are deemed and taxed as an employee when working for an umbrella company, IR35 legislation is also completely irrelevant so you’ll never get caught out!
Take on a diverse range of contract types
The administration associated with taking on short term contracts are many when contracting as a limited company. Thanks to the lack of administrative duties as an umbrella employee, you can access a selection of contract types without the admin hassle. As well as being available to enjoy the variety of short term contract work, those targeting lower paid jobs can also do so profitably by working through an umbrella company.