What is an Umbrella Company?

What do Umbrella Companies do?

Umbrella companies employ workers who are on fixed term contract assignments. They act as intermediaries between yourself – a contractor – and your end client or agency. Your agency pays the umbrella company, who then pay you, the contract worker, through PAYE – as if you were a full-time employee.

This means that tax and National Insurance contributions (NICS), for instance, get deducted by the umbrella company on your behalf. It’s a process that serves to simplify your administrative and financial responsibilities. So, you don’t have to worry about filing things like tax returns.

How does Umbrella Company Employment work?

Confused? Don’t worry. Here’s a breakdown of how the process of umbrella company employment works in practice:

• Once you’ve selected your umbrella company, they’ll sign an agreement with your recruitment agency or end client.
• A contract of employment is then signed between you, the worker, and the umbrella company.
• You’ll then become an employee of the umbrella company.
• You’re required to provide a timesheet detailing your hours of work for each payment cycle, as well as any expenses, etc.
• Your umbrella company then invoices your end client (or agency).
• Your umbrella company takes care of things like Tax, NICs and other deductions required by law. They also retain their margin before paying you direct into your bank account.
• Every time you’re paid, you’ll get a payslip and reconciliation sheet, detailing each wage you receive.

What is an Umbrella Company and what are the benefits?

Umbrella companies serve to support your contracting career. They’ll remove your administrative burden and make sure you’re paid on time, every time. With a good umbrella company, you should get the benefits of permanent employment, while maintaining the flexibility of part-time contracting. Benefits include:

1. Statutory Employment Rights

As soon as you join an umbrella company, they should make you aware of your statutory employment rights. This includes things like holiday pay, sick pay, and maternity/paternity pay.

2. HR Support

Umbrella company employees should have access to a professional HR department, providing guidance and support when things aren’t running quite so smooth. This includes anything from notice or pay disputes, to unfair dismissal.

3. Continuity of Employment

As a contractor, you may have multiple end-clients, with contracts running simultaneously. But with an umbrella company, you’ll only ever have one employer. Your contract will persist even when looking for a new assignment. As an employee, continuity of employment will make it easier to get credit or apply for mortgages.

4. Insurance

Regardless of your selected provider, you must make sure you’re covered. Certain umbrella companies provide necessary insurance, as standard. This enables you to carry out your work in a safe and secure manner. Some umbrella companies, though not all, also provide things like health, life and accident insurance at no extra cost. With Danbro, you’re automatically covered by our Public and Employers’ Liability insurance, as well as Professional Indemnity insurance.

DID YOU KNOW? With Danbro’s umbrella employment solution, you’ll only pay a margin when we process your pay. So, you don’t pay a penny if you’re not working.

What is an ‘Overarching Contract’?

An overarching contract is a special type of employment contract, which links together a series of separate assignments. Under this agreement, a temporary worker becomes an employee of the employment business/umbrella company. This is evidenced by the inclusion of certain provisions, like ‘constituting a genuine employment relationship’.

What happens when my assignment finishes?

You’ll be in employment both during and after your assignment. That continuity will help you when taking out a mortgage, for instance. It also provides the flexibility of contracting and the stability of full-time employment.

Danbro work with a national network of recruitment agencies, covering all sectors. If you don’t get paid for five weeks, we’ll get in touch to see how we can help. Likewise, if your assignment comes to a close and you don’t have another one lined up, you can get in touch with your payroll team.

Can I claim expenses as an Umbrella Company Employee?

When you register with Danbro, we’ll ask you to complete our ‘worker questionnaire’. This will determine your eligibility to claim ‘allowable expenses’. Allowable expenses are expenses which are “incurred wholly, exclusively and necessarily in the performance of your duties”. If you’re entitled to claim expenses, you can submit your claim through our online portal.

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Will I get a Workplace Pension?

Yes. A contracted worker, who is an employee of an umbrella company – or professional employment organisation – should be enrolled into a pension scheme when they join the company, providing they meet certain criteria.

With our umbrella employment solution, you’ll have access to the Danbro One pension scheme. Your eligibility for automatic enrolment will be assessed 12 weeks after joining Danbro. You’ll get more information about this when you register. We’ll also send you more details about the pension scheme too.

We’ll make sure that you remain informed throughout the whole process. It’s important to note that, although you can opt-out of a pension scheme, by law, you are only allowed to do this once you’ve been assessed as eligible and have been automatically enrolled.

Will I have to pay more tax with an Umbrella Company?

We only deduct the necessary tax on the sums we handle for you. When you register with Danbro, we’ll ask you about other jobs you’ve had and money you earn. We do this to ensure that you’re on the appropriate tax code and are paying the right amount of tax.

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You must also declare additional income, or capital gains, to HMRC. Furthermore, if you have any queries relating to your tax code, it is your responsibility to raise them with HMRC.

Employer’s National Insurance: How does it work?

All employers are legally obliged to pay Employer’s National Insurance (ENI) to HMRC. However, it’s often misconstrued that umbrella companies are making illegitimate deductions from pay when ENI gets taken from the money they’ve earned.

This is false.

ENI must get paid to HMRC by whoever establishes themselves as your employer. So, under Danbro’s employment umbrella company, you are our employee. Therefore, we bear the cost of employment. What this means in practice is that the rate you’re paid for your assignment gets uplifted to account for costs such as ENI, the Apprenticeship Levy, tax, etc.

So, the money you take home is the same amount that a permanent employee would earn for the same job. All the deductions required by law have been compliantly taken.

Your payslip should clearly outline any deductions to ensure your take-home pay is transparent, with no hidden fees. Hence the importance of selecting a consistent and compliant umbrella provider.

DID YOU KNOW? Danbro have operated in the contractor industry for over two decades. We’ve got longstanding relationships with many of the UK’s top recruitment agencies. We process around 200,000 contractor payments every single year.

Umbrella Company Mythbusters!

Many people who’ve considered umbrella company employment as an alternative to more ‘traditional’ types of work will have heard more than a few misconceptions about umbrella companies. Here are just a few of the falsehoods to be aware of:

• ‘Umbrella companies are liable when it comes to HMRC investigations.’

Contractors often overlook the fact that HMRC can choose to investigate any individual’s tax affairs, regardless of their employment arrangement. So, if it transpires that business expenditure, for example, has been claimed fraudulently, you (i.e. the umbrella worker) are liable for any tax or penalties due.

• ‘Umbrella companies avoid tax!’

If you’re using a reputable, FCSA regulated, HMRC compliant provider, there should be no cause for concern in this regard. However, be aware that joining an umbrella company that promises conspicuously high take-home pay could be dangerous. Particularly if they’re involved in something called a ‘contractor loan scheme’. HMRC have deemed this practice as tax avoidance. Remember, it’s you who’s liable if there’s found to be any wrongdoing in relation to your tax. So, if it sounds too good to be true (like ‘keep 90% of your tax’, or, ‘keep 90% of your contracted rate’), it often is.

• ‘Umbrella employees are subject to IR35.’

Intermediaries Legislation, or IR35, is a very significant tax law, affecting freelance contractors. Its aim is to prevent individuals who would ordinarily be viewed as an employee, from offering their services through a limited company – usually in order to avoid paying Income Tax and National Insurance contributions.

The government introduced IR35 to deal with the issue of ‘disguised employment’. So, its impact is felt by those falsely positioned as sole traders and limited companies. Umbrella company employees, on the other hand, are generally outside of IR35.

Choosing an Umbrella Company

So, if you’re thinking of joining an umbrella company, or looking to switch to a different provider, there are a number of considerations to make.

In the UK, there are countless umbrella companies competing for your interest. Choosing the right one is crucial. After all, this is your livelihood and it’s a decision that could have a lasting impact on your financial future. The best umbrella companies provide rewards, security, and all the benefits of permanent employment. But take heed, the worst companies can cost you time, money and a whole lot more besides.

Danbro’s dedicated team will give you a full consultation to help you find the solution that’s right for you. You’ll also get a sample calculation to give you a better idea of your take-home pay.

TOP TIP: Do your research! As with any service provider of this nature, it’s advisable to check the accreditations of your prospective umbrella company. FCSA, PRISM, CFA and APSCo, for example, are all desirable regulators to receive endorsement from.

What happens if I work for multiple companies/agencies?

At Danbro, we retain one margin per timesheet processed. So, if you’re working on an assignment for more than one agency during the same week/payment cycle, we need to know the details so we can process your payment correctly.

If we process more than one timesheet as part of your payment, we’ll retain one margin for each timesheet processed in that period.

How do I join an Umbrella Company?

Registration with Danbro’s employment umbrella company is swift, simple and stress-free.

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Online registration takes between 5 and 10 minutes. Simply upload your personal identification and complete a few short details. We require proof of name, proof of address, and your Right to Work in the UK, along with your consent to our Contract of Employment.

For more information, get in touch.