The true value of umbrella companies for UK contractors

Umbrella Companies have certainly come under some fire over the past year and we’ve all read and heard some bad press portraying them all as the ‘baddies’ who just want to take their cut and deprive the contractor of hard-earned money.

They just process the payroll and expenses, right? WRONG!

They do a whole lot more than that and are key to supporting and sustaining a strong flexible workforce that is vitally important to the growth and success of UK plc. 

Julia Kermode is chief executive of the Freelancer and Contractor Services Association (FCSA), the independent trade body that is committed to setting standards for umbrella employers and contractor accountancy providers and here she sets out to dispel some myths around the role of umbrella companies and in doing so help to promote and foster improved relationships between contractors, recruiters and umbrellas.

From a contractor’s perspective, umbrella employers provide contractors with full employment rights, all statutory benefits including holiday pay, maternity pay, paternity pay, sickness pay, pensions, redundancy pay and adoption pay.  A contractor is an employee of its chosen umbrella employer and with that relationship comes a responsibility for the umbrella firm to provide professional advice and an HR service to its contractors – a responsible umbrella company cares for its employees, the contractors.

As a contractor’s employer the umbrella firm keeps a record of the contractor’s full employment history which serves to help someone who works on multiple contracts to access personal finance solutions such as mortgages and loans.  It has been some 18 months since the mortgage market review (MMR) came into force and lenders tightened their purse strings. Now contractors have to share details of bank statements, credit card bills and life plans and prove that they can easily afford the mortgage repayments - umbrellas can help provide a complete employment picture to support any mortgage application to make the process much smoother for contractors.

And, when it comes to pay, umbrellas provide a joined-up service as a contractor’s employer.  Individuals who work at multiple locations over short periods of time can rely on the umbrella company to join up the process so that they receive one pay cheque on a regular basis.  For anyone who gets called to work at short notice, , this is an important service  so that they can simply get on with their jobs they are trained to do with no risks attached.

Contracting could be a risky business without the help and advice of umbrella employers – commercial risks, employment risks and statutory risks could certainly put off a contractor working for him or herself.  And let’s not forget health & safety!  Umbrellas are responsible for the health and safety of their employees when working at or travelling to/from an end-client’s premises, giving extra protection and peace of mind.

By working for an umbrella, a contractor is protected from the risks.  So, if an umbrella employee makes a mistake the umbrella employer is insured to cover that mistake whether that is at work or when it comes to taxation – for example, the umbrella would step in to support a contractor through any HR tribunal case and also ensure that a contractor’s tax and national insurance is paid at the correct rates – the umbrella is liable for any errors which must be hugely reassuring to any contractor. 

From a recruiter’s perspective a fully compliant umbrella employer manages the commercial, employment, taxation, and statutory risks associated with the use of temporary workers for the supply chain. 

It is clear that umbrellas are a valuable part of the supply chain and a relationship between contractors, umbrellas and recruiters should be seen as a partnership.  One could argue that a symbiotic relationship between all three parties is obligate; they all rely on each other and it is vital that they all work together to foster a good working relationship for the benefit of all.