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Recruiters: Answers to Your Questions About Umbrella Company Employment

Since Private-sector IR35 took effect in April 2021, large numbers of contractors have entered employment with an umbrella company for the first time. As a result, recruiters are receiving an increased number of questions about umbrella company employment, so in this article we’ll tackle some of the more common queries.

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Why your contractors might be switching to an umbrella company

There are others, but IR35 is currently the biggest factor driving contractors to switch from trading through a limited company (PSC) to being employed by an umbrella company. This could be because they’ve been assessed by the end client as inside IR35, or it could be because the client has decided not to work with PSCs. Either way, if your contractors are used to trading through a PSC, the move to umbrella company employment will require some adjustments.

Why is umbrella company employment the best option?

Umbrella company employment is usually the best option available to contractors who are inside IR35. This is because they’ll be paid roughly the same as they would through the other compliant routes but:

  • They don’t have to fund the cost of running a Limited company from taxed income
  • They get all the rights, protections and benefits associated with employment
  • Depending on the umbrella, they may receive other benefits as well

The one common exception is where the contractor expects to be outside IR35 for future contracts, in which case it’s best to choose an option that would allow them to switch between umbrella and their company on a contract-by-contract basis. For example, using our own Orange Genie Complete service would solve this problem.

How does the umbrella company model work?

A compliant umbrella company will employ your contractors, and supply their services to you, in much the same way as you supply them to your end client. Effectively, the contractor’s employment is outsourced to the umbrella, saving you the cost, work and risk of employing contractors, while giving the contractor the benefits of full and continuous employment.

Your contractual relationship is with the umbrella company, and payments for the contractor’s work go to them rather than the contractor. The umbrella company then pays the contractor as their employee.

Why is the umbrella rate usually uplifted?

By outsourcing employment to the umbrella company, the recruiter passes on the costs of employment, so they are now paid by the umbrella company instead. These costs include Employer’s NI, Apprenticeship Levy, holiday pay and employer pension contributions.

The assignment rate paid by the recruiter to the umbrella company includes these employment costs, as well as the contractor’s gross pay, and it’s usually uplifted to reflect this. So, if the contractor’s gross pay should be £X, the assignment rate should be £X plus the employment costs.

Why are my contractors asking about employer’s NI?

Employer’s NI is a cost that the umbrella company has to pay as the contractor’s employer, and it’s included in the assignment rate, as mentioned above.

A compliant and responsible umbrella company will be completely transparent about how they calculate the contractor’s pay, so the contractor will see employer’s NI detailed in the calculation of their gross pay from the assignment rate.

Where the contractor has been given the assignment rate as the amount they will be paid, they may believe that they are paying the employer’s NI, which would obviously be unfair, and is not the case with a compliant umbrella company.

This is one reason why it’s now a requirement under the Agency Conduct Regulations for recruiters to provide each contractor with a Key Information Document (KID) explaining their pay before they accept an assignment.

Can umbrella company employees choose their own pension?

The majority of umbrella company employees will be automatically enrolled onto the umbrella’s own workplace pension scheme, as all UK employers are required to do this. However, that doesn’t mean they’re not able to choose their own pension. In every case the contractor should be able to opt out of the umbrella’s scheme and make their own provision if they choose, they just have to be auto-enrolled first.

Some umbrella companies will allow their employees to pay into an alternative pension via salary sacrifice, but this isn’t a requirement and will depend on the individual umbrella.

Does it make a difference that umbrella contractors are employed?

One advantage of umbrella company employment is that your contractors have a single period of employment across all their assignments. This ensures that they’re entitled to all the rights, protections and benefits of employment, including:

  • Paid holiday
  • Statutory payments like sick pay and maternity/paternity pay
  • Access to a workplace pension scheme

There may also be other benefits, depending on the umbrella company. For example, employees of Orange Genie get access to a wide range of benefits designed to help them make their money go further, care for themselves and their families, and get more out of contracting.

If you have any questions or if we can help in any way, please call our expert team on 01296 468483 or email


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