What Freelancers & Contractors Should Know Before Working with an Umbrella Company
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Popular in the UK, umbrella companies act as: (1) employers for freelancers and contractors working on fixed-term contracts; and (2) intermediaries between freelancers or contractors and their end client or agency. In essence, an umbrella company organises payment for the freelancer or contractor by collecting the earnings from the end client or agency, deducting tax and National Insurance Contributions, and then making payment to the freelancer or contractor for the service provided. Given an umbrella company’s administrative role, freelancers and contractors enjoy many benefits from such working relationships. Paperwork and hassle are eliminated and a confidence is created that all necessary taxes are paid properly and in line with the law.
Nonetheless, one glance at the results of an internet search evidences a wealth of umbrella companies from which to choose and a mountain of information regarding such working relationship. While choice and information are good things, they can also be overwhelming and make determining if working with an umbrella company is right for you, and if so, which one, much more difficult. To help with your decision, consider the following key factors of which you should be aware before committing to an umbrella company’s service.
- Cost of Service
Firstly, know how much the company charges for its service. This is imperative, as you don’t want to lose half of your income for the perceived benefit of working with an umbrella company. Realistically, expect to pay at least $30 per week, or $120 per month. Such fee can often be paid monthly, which is the payment period preferred by most workers.
Whilst on the subject of cost, it is pivotal to point out that many umbrella companies promise to lower the amount you pay on taxes, suggesting that you will accrue savings by working with one company over another as a result of such reduced payment. This is impossible. Taxes are implemented by the government, meaning that no singular umbrella company has the power to alter your required tax payments. Rather, a main difference in cost between umbrella companies is the fee that they charge.
- Length of Payment Period
Next, determine how long it will take to receive payment. After all, one of the main benefits associated with an umbrella company is enhanced convenience. You don’t want to trade that for weeks and weeks between submittal of your timesheet and receipt of the money for which you worked hard.
- Operational Efficiencies
You’ll also want to determine how the service actually works from an operational standpoint to discover whether an umbrella company is beneficial and convenient for you. For example, can your timesheets be submitted online? Are there verification requirements? Billing guidelines? Also, does the company only handle your invoices? Or, will it facilitate the exchange of all documentation between the parties, like umbrella companies that may use a third-party service like https://www.templafy.com/contract-management/ to manage your contracts and address all necessary paperwork? Details like these can have a crucial impact on your daily workflow, happiness, and work-life balance.
- Customer Reviews
Last but not least, read reviews authored by previous customers. This is one of the best ways to honestly assess a company’s level of quality and reputation. If users were unhappy with past services received, you are rest assured that their feedback is likely memorialized on the internet as a future warning to others.
Hopefully the forgoing guideposts are helpful to you as you analyze various umbrella company options available to you. When properly vetted, a quality umbrella company that handles your taxes and net profit for you is a fantastic option that can make your life much easier.
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