With contracting becoming an increasingly popular way of working, there’s been a boom in the number of umbrella companies entering the market. Although this gives contractors more choice when it comes to selecting an employment solution, it can also complicate the process. Many contractors don’t have the time to research various umbrella companies, or know what to look for in a reliable payroll provider. Nearly all umbrella companies will market themselves as compliant, but as recent activity surrounding IR35 has shown, this term can be misleading. Changes in legislation can leave contractors vulnerable to HMRC investigations and large retrospective tax bills. There are a number of unscrupulous employment providers who operate various schemes to reduce tax liability while claiming to be fully compliant. At Amaze, we understand that making the wrong decisions can have serious consequences for contractors. Not only do we aim for maximum compliancy with approval from independent regulators, we also aim for transparency, so that your payment process is clear and straightforward at every stage. Below we’ve put together some guidelines on what to look for when it comes to selecting a compliant umbrella company, and what to avoid.

Freelancer & Contractor Services Accredited (FCSA)?
FCSA accreditation is recognised as the industry’s compliance gold standard. It’s also the only accreditation recognised by all of the UK’s leading industry bodies. Accredited Membership is awarded to service providers that have been independently audited by industry experts to confirm that they adhere to the FCSA’s rigorous codes of compliance. Umbrella companies who display the FCSA logo have their annual audit disclosed to HMRC.

Adequate website information?
In addition to the FCSA logo, there are a number of other signs to look out for on an umbrella company’s website. Be wary of unrecognised accreditations and endorsements that might not be genuine. Websites that look thrown together with vague information can be a sign that the company has been set up quickly and could just as easily disappear overnight. Contractor forums are a good source of unbiased feedback and your recruitment company may also recommend an umbrella company with a proven track record.

Genuine employer?
Compliant umbrella companies act as the contractor’s employee under an ‘overarching contract of employment.’ This gives contractors access to the rights and benefits associated with permanent workers, such as sick pay, holiday pay and maternity/paternity pay. If a company doesn’t offer a genuine contract of employment, they may try to avoid providing you with what you’re entitled to.  

What’s the margin?
Although many umbrella companies offer competitive margins, it’s not always the case that the lowest admin fees represent the best value for money. With very low fees, there can be extra charges for certain benefits. If an umbrella charges you a percentage of your earnings rather than a flat rate, this can mean that high earners end up paying disproportionate amounts for a standard service. Similarly, some umbrella companies charge a flat rate, but will charge you regardless of whether you’re working on assignment or not.

Same-day payment and expenses policy?
Most compliant providers will run payrolls on a daily basis so that you get fast access to your funds. What’s more, you should also be aware of the umbrella company’s expenses system. While some umbrella companies will let you put through claims that are not valid as a means of letting you keep more of your earnings, this practice could land you in trouble if HMRC comes calling. Many umbrella companies do not allow expense claims as this can compromise compliancy.

User-friendly?
Contracting can be both a demanding and unconventional profession, so you need an umbrella company that’s user friendly. Your umbrella should provide you with access to a secure online user-portal. This will allow you to submit your timesheets and expense claims around your schedule, rather than 9-5 hours that don’t always apply to contractors. You also need fast and reliable access to a customer service team who can deal with your enquiries.

Transparent payment process?
Contractors should always be dubious about umbrella companies who advertise that you can take home 80-90% of your earnings. This isn’t a realistic claim as the government sets NI and income tax, so these shouldn’t affect your pay. Like any employer, your umbrella company should provide you with a payslip that clearly shows your payment process. Complex processes that include transactions involving third-party loans or payment via offshore trusts are clear warning signs that your umbrella company might not be operating compliantly.

Last year saw the introduction of IR35 reforms to the public sector as the government declared zero tolerance on tax evasion. With the tightened rules scheduled for roll out to the private sector in April 2020, it’s important that umbrella companies are aware of any changes in current legislation. This will ensure that all parties in the supply chain are responsible for acting compliantly. For more information on IR35, read our quick guide.

To speak to a member of our team about how our service could help you, call 0161 464 8993