One of the first questions contractors will ask themselves when considering using the services of an umbrella company is how much it will cost.
Every umbrella company charges a fee to the contractor, so it's up to them to decide whether the workload and responsibilities taken off their shoulders by the umbrella company are worth the cost. To help contractors decide, Umbrella Search has put together this complete guide outlining everything there is to know about umbrella company costs and fees.
What are umbrella company fees?
Let's start by taking a look at what fees and costs are charged by the umbrella company, after all, you'll want to know what you're paying for.
An umbrella company charges a fee to the contractor in exchange for a range of services.
Firstly, the umbrella company will become the contractor's employer and put them on their payroll.
This means that the contractor is paid a salary by the umbrella company rather than being paid directly by the client. This has several benefits, meaning that the contractor doesn't have to spend time invoicing the client, managing cash flow and chasing any late payments.
By being on the umbrella company's payroll, it also means that as well as receiving a regular, stable income, the contractor's pay is processed through the pay-as-you-earn system. This is the most common way to pay tax in the UK and means that any tax owed is deducted from your pay before it arrives in your account. This means that the contractor is always up to date with what they owe HMRC.
This also has the additional benefit of removing the need for the contractor to do a self-assessment on their income.
As well as putting the contractor on their payroll and sorting out their salary, an umbrella company also acts as the intermediary between the client and contractor, again taking this responsibility away from the contractor. That means that they look after any paperwork and admin that needs to be taken care of.
They are also on hand to support the contractor if and when they need help. Say you want advice on buying more holiday leave, paying into your pension or childcare tax credits, the umbrella company is always on hand to help.
Furthermore, an umbrella company will also ensure that the contractor is provided with statutory benefits which includes holiday pay, sick pay and maternity or paternity pay. You can read more about statutory benefits for contractors in our handy guide.
Finally, the umbrella provider will also ensure that the contractor is covered with the correct levels of insurance. This will include professional indemnity insurance, employer’s liability insurance and public liability insurance for every contractor, and any specialist types of insurance depending on the contract at hand.
That's what contractors can expect to receive in return for the umbrella company fees they will pay. Next, we will look at how much you can expect to pay.
How much are umbrella fees?
Although it seems like you are getting a lot for your money, contractors will be relieved to know that umbrella company fees remain highly competitive.
That means that contractors can expect to pay in the region of around £25+ per week.
Obviously this figure will vary from provider to provider and will be based on the level of services you require. After all, if you require the basic levels of services from the chosen provider you can expect to pay the base level fee, however should you need lots of additional support then you may end up paying a little more.
When will you pay more?
There are some instances in which you may end up paying more in umbrella company costs.
Some umbrella companies, for example, will charge the contractor extra for things such as same day payments or processing expenses, so if you think that you will be impacted by this it's always worth checking whether your chosen provider includes this in their fee.
Likewise, some umbrella companies will charge a sign-up and exit fee which is again a cost to take into consideration.
How are umbrella fees paid?
When it comes to paying the fees, there are a couple of different ways that umbrella companies can charge them.
Before signing up with a provider it's important to look out for how the umbrella company will charge its fees as this can impact how much you end up paying.
Let's take a look at the different options.
Option 1: Fixed Umbrella fees
The first option is a fixed umbrella fee, when the umbrella fee is charged as a fixed sum of money, meaning it is the same amount each time.
The benefits of paying a fixed fee include:
The contractor knows how much they will be paying each month, so they can have better control over their finances
The contractor won't have to pay more in the instance that they begin to earn more as they would with a percentage fee
For these reasons, the fixed fee route is the most common among contractors.
The other way that fees can be charged is by the percentage method.
Option 2: Percentage umbrella fees
Unlike a fixed fee, a percentage fee is taken as a percentage of the contractor's invoice value.
This means that say the contractor earns £2000 in January, the umbrella company will take their fee as 2% of this. However, the next month, the contractor earns £3000, yet the umbrella company will take the same percentage, meaning the contractor is paying more in fees but receiving the same level of service.
It is for this reason that this is typically the least preferred method of paying umbrella fees and means it's important that you always check how your provider will charge their fees.
Let Umbrella Search help with the next steps
Now you know how umbrella company fees work and how much you can expect to pay, if you think the time is right to start using the services of an umbrella company, the next step is to find the best one for you.
That's where Umbrella Search can help.
At Umbrella Search, our team of professionals will work to find the best-suited umbrella company to suit your contracting needs and budget. That means no nasty surprises when it comes to paying umbrella fees; we'll find a provider within your budget that you can trust to do a great job.
To start the process of finding the best umbrella company out there, simply get in touch today.
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