Do Umbrella Companies Rip You Off?

Our reviews on Feefo are generally amazing.?Most people give us either 4 or 5 stars, which is great to hear.?Recently, I was having a look through some of the less favourable reviews to see if there were any trends.?One review jumped out at me:

After reading this review, I realised understanding umbrella payslips can be confusing. I thought it would be a good idea to explain it in a more everyday way.?

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What are employment costs?

?Every employer has to pay employment costs:

• Employer’s National Insurance
• Employer’s Pension (if the employee is auto-enrolled)
• Apprenticeship Levy (if their payroll bill is over ￡3m per annum)

?It’s important to note that contractors?do not?pay employers costs. The confusion happens because some contractors think that the umbrella rate (also known as the limited rate) is THEIR rate of pay.

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What is the umbrella rate?

If a contractor?“goes PAYE directly through their agency”, the agency will quote?only?the PAYE rate to the worker.?This is usually a lot lower than the umbrella rate.

The agency has to pay employment costs and also employ people to administer the payroll. When a contractor works on an agency’s PAYE, they don’t see these additional costs that are incurred as they happen behind the scenes.

When a worker uses an umbrella company however, the agency rolls all of these costs up into a single rate – this is known as umbrella rate/limited rate:

?The take home pay that the contractor receives will be almost identical via a genuine umbrella company or on an agency’s own payroll.??The aim of an umbrella is not to avoid tax and increase how much a contractor earns, but instead to offer benefits such as one employer/tax code when working through multiple agencies, provide options when it comes to pensions and holiday pay, give contractors access to wider benefit schemes and lots more.

It is our aim to help contractors to understand how genuine umbrella companies operate and how to spot rogue traders in the marketplace. Here are some things to watch out for:

• Umbrella companies that do not make contractors sign an employment contract.?
• Income that doesn’t appear to have had tax/NI deducted, or comes from other sources
• Not receiving all of your your holiday pay/time off

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So are umbrella companies ripping you off??

For genuine umbrella companies, the answer is a resounding no.?Just make sure that they are Professional Passport accredited.?For those that aren’t prepared to subject themselves to that level of scrutiny, the jury is definitely out!

The example above is hypothetical and assumes the contractor has chosen to accrue their holiday pay, excluding pension contributions. This example has been significantly simplified for the purpose of the explanation.?To stay safe in your job search and flexible work, we recommend that you visit JobsAware (www.jobsaware.co.uk), a non-profit, joint industry and law enforcement organisation working to combat labour market abuse. Visit the JobsAware website for information and to get free, expert advice for safer work.