Umbrella Company Checklist – How To Choose an Umbrella Company
by on February 16, 2023
As a recruiter you’re the vital link in the recruitment chain, getting vacancies filled and finding people employment, but also enhancing the UK’s economy in these challenging times.
One of your biggest responsibilities is to offer your candidates a suitable choice of umbrella companies so that they can maximise their income in a safe and compliant manner.
Here, we look at the issues you should be watching out for when you make those choices.
Why are umbrella companies good for contractors?
The right umbrella company can benefit your contractors in so many ways:
- They can be ‘employed’ while choosing the contracts they work on
- Complex tax and NI administration is taken care of for them
- They receive statutory sick pay, maternity or paternity leave, holiday pay and can even be enrolled onto a pension scheme
- There’s a simple enrolment process
- They receive prompt payment
- The umbrella provides evidence of continuity of employment – vital for applying for a mortgage, for example
However, having the right umbrella companies on your PSL that you can confidently recommend to your contractors can be a complex matter (we looked at reviewing your PSLs here). Let’s look at what you should consider when you’re compiling your list.
The number one aspect of any umbrella’s business to consider is whether they’re compliant or not. It’s a simple matter to check when you’re doing your due diligence, but without the protection of compliance, you’re leaving both your contractors and yourself open to falling foul of HMRC’s severe financial penalties for tax avoidance.
Red flags to watch out for include:
- Short-term employment contracts – or no employment contract at all
- Being asked to sign multiple documents
- Being offered ‘enhanced’ options
- Offering higher-than-usual take home pay
- Unusual payment arrangements
- Payments said to be ‘non-taxable’
- Receiving more money than is stated on a payslip
- Being referred from a comparison site or broker website
- Being charged excessive fees or margins
- The umbrella is based outside the UK
If you believe that any umbrella company that you engage with is engaged in any of these practices you should cease to deal with them, and report them to HMRC here.
You should also ensure that the umbrella companies you deal with are Freelancer and Contractor Services Association (FCSA) members. The FCSA will issue a certificate of compliance, having assessed the company’s documentation and processes, if it meets their rigorous ‘professional financial and ethical standards’. You can view Payme’s accreditation certificate here.
Longevity and reputation
How long has the umbrella company been in business?
Be extremely cautious about recently-established companies without a history of providing quality, compliant products for contractors. A simple search on Companies House can reveal when the company was founded.
Payme, for example, has a history dating back to 2011, when it was first incorporated. You can view a particular company’s full accounts, which will include a list of its directors, its registered office, its independent auditors, and statements of income and finances. This will enable you to make an informed judgement about the financial health of the company and the people who run it, as well as any risks you may encounter when partnering with it.
Do your contractors have regular or ongoing disputes with their umbrella company?
Do they find it difficult to resolve these issues due to a lack of customer service staff to discuss them with?
Is there a lack of interest or an unwillingness to look into any problems you encounter?
You wouldn’t tolerate poor customer service if you experienced them in other areas of your professional life, and an umbrella company should be no different. Your partner umbrella company should be proud to offer a simple registration system, quick and accurate payments to your contractors, a secure and straightforward portal, prompt pay information, and a dedicated team of account managers to answer queries both from your contractors and you.
Watch out for umbrella companies that don’t offer a range of different products.
Those that offer only one product may be tax avoidance schemes.
Ideally, your umbrella provider will offer both your contractors’ products which suit their needs and circumstances, as well as a range of those that suit your own recruitment business.
Payme, for example, offers its Umbrella PAYE services and Payme Construct for CIS contractors, as well as Payme Plus PEO (Professional Employment Offering) which offers fully managed outsourced payroll and employment services for agencies who lack the time and resources to engage workers on a generic PAYE basis.
Increasingly today, agencies are looking to partner with umbrella companies which share their own values – of honesty, integrity and fairness in their business practices.
When you’re considering your partner umbrella companies, choose ones which align with your own principles. Ask if they have guidelines surrounding issues such as the Gender Pay Gap, GDPR, Privacy and your contractors’ personal data, and Modern Slavery and Human Trafficking. You’ll already be aware that these issues are vitally important for your business’s employer branding, and they’ll matter to your contractors too, so make sure you’re aware of them and factor them into your choice of umbrella company to enhance your reputation.