How to Spot the Bull Sharks as a UK Contractor

If you’ve recently been researching umbrella companies online, you could be forgiven for feeling a little alarmed. Between ill-informed or self-interested news articles claiming all umbrellas are pirates, parasites or con-artists, and the outlandish promises in the “paid ad” section at the top of your Google search results, it could be tempting to simply turn and run from the circling fins. But before you rush out and buy a bigger boat, we’d like to assure you that these waters are not nearly as deadly as they may at first appear.

So why all the controversy?

The term “umbrella company” should describe a company who employ contractors to complete a succession of temporary assignments under an overarching contract of employment. Compliant umbrella companies provide employment to contractors, along with all associated benefits, rights and protections. They also help recruitment agencies manage the administration, cost and risk of employing contractors, allowing them to concentrate on finding you work.

Unfortunately, anyone can call themselves an umbrella company and a minority of those doing so are less expert and possibly less honest than you would like. Some of these are little more than transparent tax avoidance schemes. It’s this small minority of rogues who seem to get all the press.

Why should you care?

Non-compliant companies certainly don’t have your best interests in mind and if they’re willing to break the rules there’s no reason to believe they’ll be honest with you. Assuming you are paid, and assuming your pay lives up to their promises, you’re likely to be at risk of HMRC investigation, possibly culminating in a bill for unpaid tax, plus interest and penalties. It’s very much in your interests to make sure you’re employed by a reputable, compliant umbrella company.

What are the signs to avoid?

 One important piece of knowledge to arm yourself with, is that all compliant umbrella companies operate under the same rules and in fact the same laws govern all employers in the UK. This means that all compliant umbrella companies will pay you roughly the same amount for any given contract. The only variation will be in the margin each umbrella makes, and this is usually not enough to make a significant difference. If a prospective umbrella company quotes a significantly higher take-home figure than other companies, this should ring alarm bells.

Similarly, any of these phrases should automatically put a company in the “approach with caution” column.

Up to X% take home – typically “X” will be 80, 90, or higher but whatever the number this kind of marketing is used to suggest you’ll be paid more than you will elsewhere, and as we’ve already pointed out, this can’t be true, at least on the right side of the law. Whatever secret magical formula these companies claim to be using, we can guarantee that it’s either nonsense or it will put you at risk.

Highest returns, outstanding returns, high take home etc. – In fact any claim to be able to increase your pay to higher levels than their competitors. If the amount you’ll be paid is the main selling point, it’s probably best to look elsewhere.

HMRC approved – HMRC don’t rubber stamp any company or scheme. Where you see this it’s always being used to mislead you.

 

How can you find a compliant umbrella company?

Your agency may have a preferred supplier list (PSL). This is a list of umbrella companies that they’re happy to work with and many will insist that you choose from that list. Usually the agency will have vetted them for considerations like compliance and service, so it’s probably to your advantage. It’s worth checking the criteria your agency used to compile their PSL, as this could cut down the amount of research you need to do yourself.

Look for an established company. Even if there’s no intention to do anything wrong, a newly set up umbrella company may not have the depth of knowledge, the resources or the systems required to operate correctly. If their lack of experience causes problems it could be you who suffers. Employment is a not a simple undertaking, and your employer has a host of obligations to meet. Just running payroll correctly involves a detailed process which requires specialist software and highly trained staff. An established umbrella company will be expert in their field and will have procedures for holiday pay, statutory payments and pension provision. They’ll be on top of new legislation before it’s implemented and they’ll be able to offer reliable advice as the landscape changes. They’ll also have robust, flexible processes in place to make sure you’re paid correctly and on time.

The best way to ensure your umbrella company is compliant is to look for accredited FCSA members. Accredited members have made a commitment to doing things properly, and that commitment is confirmed via an annual review against FCSA’s demanding compliance standards. It’s worth noting that associate members have not been audited in the same way. If you only check one thing about your umbrella, check that they’re accredited members of FCSA. Other accreditations, like Professional Passport, ISO9001 and Investors in People are also good indications that a company are serious about doing things properly.

 

If you have questions about umbrella companies, or to register with Orange Genie Umbrella, please call our expert team on 01296 468 483 or email info@orangegenie.com.

 

 

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