If you’ve found this page you probably have questions about working with an umbrella company.

Maybe you’re starting from the top, and you’re looking for an explanation of what an umbrella payroll company is, or on how they operate.

Or perhaps you’re curious about the benefits an umbrella company will bring to your business, whether you’re on the agency side or the contractor side.

Whatever your question, we’ve designed and written this guide to get it answered. We’ll cover all aspects of umbrella companies, from their operating structures to the regulations they comply with, to the benefits they deliver to agencies and contractors, and plenty more.

This page contains everything there is to know about an umbrella company. After reading you’ll be equipped to decide whether partnering with an umbrella payroll company is the right decision for your business, and you’ll have an idea of the processes, costs, and considerations involved.

Here’s exactly what we’ll cover - 

  • What an umbrella company is
  • The relationship between umbrella companies and recruitment agencies 
  • Umbrella companies vs PAYE 
  • Umbrella companies vs limited companies 
  • How payroll companies work 
    • for recruitment agencies 
    • for contractors
  • The kinds of services a payroll company provides
  • How to find out whether your company needs umbrella payroll services
  • Signs your company needs an umbrella company 
  • How to choose an umbrella company
  • The fees and charges umbrella companies carry 
  • Hidden charges to look out for 
  • Why you should partner with Optimum Pay Group

Now, without further adieu, let’s dive right in.

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01. What is an Umbrella Company?

We’re guessing you’ve at least heard the term ‘umbrella company,’ otherwise, you wouldn’t have found this page!

To clear one thing up from the outset: The term does not refer to a company that manufacturers or sells umbrellas.

Instead, umbrella refers to the overarching structure that such companies provide. 

It’s a metaphorical umbrella, you see.

Umbrella companies offer payroll services to companies like recruitment agencies, and to their contractors. This type of company has grown in popularity in the UK over recent years, for several compelling reasons. 

Partnering with an umbrella payroll company offers a suite of benefits, whichever side of the coin you operate on. Such partnerships present an easy and intuitive way to facilitate smooth payment while reducing the administrative burden for agencies and contractors alike

This section explores what umbrella companies do, how they work, and some reasons to consider partnering with one.

Defining an umbrella company?

As a top-level definition, an umbrella company is one that directly employs agency workers for fixed-term contract work. In the context of recruitment agencies, their workers are contractors taking on one or more contracts through the agency.

As legal employers, umbrella companies take on the responsibility of paying contractors under their employ. They’re also responsible for deducting relevant items from payslips through the PAYE system, to ensure tax compliance. An umbrella company takes care of timesheet processing and invoice generation, further reducing the responsibilities placed on the agency and the contractor.

Depending on the nature of the contract, working with an umbrella company can allow contractors to claim back expenses associated with their work. However, the extent of eligible claims was reduced by legislation introduced in 2016. 

Expenses depend on the terms of the specific contract, and whether the work is considered to be under the SDC (or 'Supervision, Direction, and Control') of the contracting client. 

Recruitment agencies often work with umbrella companies as a way to reduce their organisational and administrative burden, along with their liability. A legally binding contract is signed between an agency and an umbrella company clearly defining the responsibilities and obligations on both sides. The partnership can translate to more streamlined internal resources and a stronger focus on core business objectives, and can even remove the need for an in-house payroll team completely.

In short, umbrella companies are a hassle-free way for both contractors and agencies to organise their affairs. An umbrella company has the expertise to reduce the administrative burden on agencies and contractors alike and can advise both sides on the most effective and tax-efficient ways of operating.

Team Meeting

Umbrella companies and recruitment agencies 

At Optimum Pay Group, we specialise in working with recruitment agencies. Some umbrella companies have other specialities - working with supply teachers, for example - but ours is recruitment.

This section explores the benefits that recruitment agencies can enjoy when partnering with an umbrella company.

Perhaps the most appealing benefit is that the umbrella company becomes the single employer for all of the agency’s contractors. This relationship places all responsibility for payments on the umbrella company, freeing up resource as we mentioned previously.

A partnership also increases the appeal of your recruitment agency to potential contractors. One way this is achieved is through the possibility of continuous employment status - a legal status that broadens a contractor’s options with regard to statutory benefits like sick pay, holiday pay, maternity pay, paternity pay, and more. Continuous employment also makes it easier for a contractor to qualify for loans and mortgages, as they can demonstrate continuous employment status.

This status - and the benefits it affords - offers a financial safety net that is harder for independent contractors to achieve.

Umbrella companies operating in specific industries may also offer perks that appeal to contractors working in said industries. A child safeguarding course offered by an umbrella company for supply teachers, for example

As a recruitment agency, partnering with an umbrella company lets your contractors use their tax code more efficiently. They receive one consolidated paycheck each period, and one P-60 at the end of the year, rather than one for every company they contract themselves out to.

From a recruitment agency’s perspective, there’s also the reduced organisational burden that partnering with an umbrella company represents.

  • You don’t need to stay abreast of the ever-evolving UK tax law. 
  • You’re less likely to attract the curiosity of HMRC if and when your in-house payroll team do overlook something. 
  • You may even be able to forgo the need for an in-house team completely, reducing operating costs and making it possible to allocate internal resources more effectively toward the pursuit of your wider business objectives.

Umbrella Companies vs PAYE 

A lot of people ask whether umbrella companies pay your tax. The short answer is yes, they deduct relevant taxes through PAYE.

If you’re not familiar, PAYE is an HMRC tax scheme that sees deductions of income tax, national insurance, student loan, and other relevant items taken automatically from your paycheck.

Umbrella companies comply with PAYE legislation to ensure that all relevant deductions are made from contractors’ salaries before they receive payment. This removes your burden of ensuring compliance and processing payment internally and removes their burden of completing self-assessment tax returns. 

Contractors are also afforded the peace of mind of knowing that the money they’re paid is theirs to spend as they see fit, rather than having to worry about micro-managing their financial affairs. For a recruitment agency, being able to offer this assurance is a boon to your prospective customers.

If your umbrella company offers pension contributions as part of their service, your contractors can enjoy the additional comfort of knowing that they’re investing in their future financial security every time they get paid.

People working around a table

Umbrella Companies vs Limited Companies 

We’re also often asked about how umbrella companies relate to limited company contractors, so let us give you the lowdown.

When a contractor decides to work on a contract basis, they can do so as a limited company contractor or an individual. Only the latter is eligible to work with an umbrella company.

For a recruitment agency, communicating the benefits of operating as an individual contractor rather than a limited company contractor involves explaining the nature and location of the administrative burden. 

For individual contractors, an umbrella agency becomes their legal employer. Their agency pays the umbrella company, which then deducts tax, NI, and other relevant payments before paying their salary. Little admin is involved, and while this is not the most tax-efficient way to operate for all contractors, the tradeoff between convenience and tax-efficiency is usually favourable enough to win them over.

Limited company contractors, on the other hand, are shareholders and directors of their own business, and can draw some of their earnings as a dividend. This reduces their tax burden but increases organisational demands. They must qualify as a genuine contractor within IR35 legislation rather than a ‘disguised employees’, or face the attention of HMRC, which comes with steep costs and the potential of even steeper fines.

In short, umbrella companies offer simplicity and a guarantee of compliance with all relevant legislation to the recruitment agencies they partner with, and to their contractors. 

A quick summary of this section…

For recruitment agencies, partnering with an umbrella company offers a range of benefits. It reduces your administrative burden, and may even remove the need for in-house payroll teams altogether.

Such partnerships also allow recruitment agencies to distinguish themselves from competitors by offering benefits to their contractors. These perks include statutory benefits like sick pay, maternity pay, and pension contributions, and also include the promise of reduced administrative demands on themselves. 

If you’ve still got questions about umbrella companies, keep reading. The next section explores in detail how they work.

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02. How do Umbrella Payroll Companies Work?

There’s a lot of confusion around umbrella companies, but these are based in unfamiliarity rather than any inherent complexity. Contracting through an umbrella company is easy, and offers a wide range of benefits. 

In this section, we’ll explore the relationship between recruitment agencies and umbrella companies. 

We’ll also break down how umbrella companies work in simple language.

After reading you’ll have a firm understanding of how umbrella companies work, and the benefits of using one as a contractor or recruitment agency.

How does an umbrella company work?

Your relationship with an umbrella company will vary depending on whether you’re a recruitment agency or a contractor.

How does an umbrella company work for a recruitment agency?

As a recruitment agency, you make the decision to enter a partnership with an umbrella company. The company then becomes the legal employer of your contractors and takes on the responsibility for managing their payroll. This includes the generation of invoices, all relevant deductions through PAYE, and making payment.

The umbrella company will also create contracts on behalf of the contractors.

How does an umbrella company work for a contractor?

As a contractor, your experience with an umbrella company will look something like this -

You'll secure a contracted role, as normal.

The umbrella company will then sign a direct contract with your recruitment agency, where the terms of the role are outlined and agreed upon.

You track your time via timesheets as normal and will have these signed and verified by the relevant supervising staff.

You submit your timesheet to the umbrella agency and the agency with whom you secured the contract, usually a recruitment agency. This ensures mutual visibility of hours completed.

The umbrella company generates an invoice on your behalf and bills your recruitment agency, who then bills the contracting client. 

Once the payment has been made down the chain and received by your umbrella agency, they process your payroll.

Your salary is calculated, then relevant deductions are made. These include PAYE deductions for tax, national insurance, student loan, pension contributions and so on, as well as fees charged by the umbrella company for their services. If you are eligible to claim expenses and have done so, these will be factored into the payroll as well.

The umbrella company issues you a payslip outlining your gross pay, all relevant deductions, and your net pay.

This process repeats at agreed intervals for the duration of the contract, ensuring you have full visibility and evidence of payment for the full term.

Here are the answers to some common questions we hear asked by contractors researching umbrella companies -

Do I need an umbrella company?

Working with an umbrella company often equates to reduced administrative obligations and a more streamlined contracting experience. Outsourcing compliance, deductions, and paperwork management to an umbrella company give you more time to focus on striking the perfect work-life balance.

Does IR35 apply to umbrella companies?

No. IR35 legislation applies to limited company contractors, and such contractors are unable to work with umbrella companies. 

A benefit of working with an umbrella company is that they remove the pressure of ensuring IR35 compliance.

Do umbrella companies pay your tax?

Umbrella companies make relevant deductions from your gross pay and these are paid on your behalf through the PAYE scheme. These deductions include income tax, national insurance contributions, student loan repayments, pension contributions, and more.

The pay you receive is your net pay, after all, deductions have been made. This means you don’t need to worry about further management of your tax affairs once you’re paid.

Working on a laptop with pad and pen

What kind of services does an umbrella company offer?

Let’s take a look at the services offered by an umbrella payroll company.

Primarily, umbrella companies offer payroll management for contractors and agencies. They act as the middleman, taking on the burden of admin, paperwork, and payments. This allows agencies and contractors alike to focus on doing their work while ensuring full compliance with all relevant legislation.

Umbrella companies also offer contractors the opportunity to claim back legitimate business expenses, if the terms of the contract allow for this. This translates to tax relief for contractors and is a way to increase their earning potential.

At Optimum Pay Group we’re proud to enrol our employees into our Nest pension scheme after three months, too. We believe that working should grant you the opportunity to plan for your future and invest in your ongoing financial security.

We also believe that contracting shouldn’t prevent you from enjoying the perks that full-time employees receive. That’s why we offer statutory holiday, and statutory benefits like sick pay, maternity pay, and paternity pay.

Not all umbrella companies offer the same services or benefits, so make sure you understand what’s on offer before making your decision.

A summary of how umbrella payroll companies work

Umbrella companies offer many benefits to agencies and contractors alike. We exist as a middleman to take on the administrative burden associated with payroll and to reduce stress on both sides.

As a recruitment agency, you can expect streamlined internal processes and more internal resources to focus on recruitment and growth. As a contractor, you can expect an optimised and efficient work-life, with payment on time, in full, every time.

Despite some confusion around the term, umbrella companies are fairly simple. By now, you should have a good understanding of how umbrella payroll companies work, and what benefits they offer to recruitment agencies and contractors.

The next section drills a bit deeper into the agency side and outlines several ways to tell whether your company would benefit from partnering with an umbrella payroll company.

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03. How to Find Out if Your Company Needs Umbrella Payroll Services

“Should we use an umbrella payroll company?” If you’re a decision-maker in a recruitment agency, chances are you’ve asked - or been asked - this question.

This section explores some key ways to tell whether your business would benefit from retaining the services of such a company.

Seven ways to tell whether you need umbrella payroll services 

Answering the question of whether you use in-house agency payroll or an umbrella company comes down to understanding the benefits on offer, the associated cost, and seeing how the two balance out.

As established umbrella payroll service providers, you’ve probably guessed that we’re strong advocates for umbrella payroll. This way of working simplifies things for recruitment agencies and contractors alike and is a surefire way to free up internal resources that can be directed toward the pursuit of broader business objectives.

Over the years we’ve worked with clients who were facing the following challenges, and who saw great benefit from outsourcing their payroll to an umbrella company.

#1: There’s no internal payroll team

As companies grow, so do their logistical challenges. While small organisations can make do with managing payroll without a dedicated team, ongoing growth makes this increasingly more difficult. If your company is at (or has passed) the point where you need a dedicated payroll team, it could be a good time to consider working with an umbrella payroll company.

Instead of recruiting an in-house team - which brings challenges of interviewing, inducting, and onboarding, along with salary expenses and other costs - why not outsource your payroll? Handing over responsibility to an umbrella company is a great way to ensure regulatory-compliant payroll services without the costs of recruiting and retaining a team of your own.

Freelance worker

#2: You’ve got short term contractors and freelancers on the books

Companies with short term contractors or freelancers on their books stand to benefit from working with an umbrella company. Instead of managing each contractor’s payroll individually and keeping track of different rates and hours, you hand everything over to the umbrella company and let them take care of it.

Invoice generation, contract management, and relevant payroll deductions are done for you, giving you the time to focus energy on other things.

#3: You can't keep on top of their expenses

Managing expenses internally is challenging, even if you have an in-house payroll team. If your organisation struggles to keep on top of expenses, and the logistical headache is eating into other areas of your business, then it could be a good time to bring an umbrella company on board.

They’ll assist with expenses claims from contractors, and will look to ensure that claims are only made when the terms of their contract allow for it.

#4: You want to save time and costs on administration

The simple truth is that only a finite amount of resources exists within an organisation, and the decisions you make in how to allocate this translate directly to how the business functions.

When making decisions that will impact the future direction of your business, it’s unlikely that sinking time and money into administrative tasks is at the top of your agenda. Far preferable is time invested in growth and expansion, and money spent on the people, systems, and resources to help you achieve this.

Outsourcing payroll services to an umbrella company gives you more freedom in directing energy and resources in your organisation.

#5: You struggle to keep on top of regulatory obligations

Tax is complicated, and it’s always changing. If your business struggles to stay compliant with all the tax legislation, then handing over the reins to an umbrella company could be a great move.

Our business depends on being fully compliant with every piece of legislation. We know PAYE inside out, and we can advise on IR35 compliance. Our business undergoes independent audits to ensure we remain compliant, and all this gives us complete confidence in our offering.

If you’d rather absolve yourself of the regulatory headache, while guaranteeing that neither you nor your contractors receive any nasty surprises from HMRC down the line, then give us a call.

#6: You’d like to offer employment benefits

Growth brings opportunity for your business, and it’s only natural that you want to pass this opportunity onto your workers as well. However, implementing employment benefits in your organisation can be surprisingly complex.

At Optimum Pay Group we’re proud to offer our employees statutory benefits like sick pay, holiday pay, and parental pay. We also enrol everyone into our Nest pension scheme after three months, giving them the chance to make active investments in their future with each paycheck.

If you partner with us, your contractors become our employees, meaning they stand to enjoy all the employment benefits outlined above.

Contractor Job Security

#7: You want to offer your contractors security

Further to the above, working as a contractor or freelancer carries its own set of challenges when it comes to securing loans and mortgages. If you want to continue working with staff on this informal basis, but want to ensure they have the same life opportunities as permanent employees, then this is another area that umbrella companies can help.

Our employees are able to demonstrate continuous employment status, thanks to us being their legal employer. So while they’re fulfilling contracts for your company, they’re enjoying the employment benefits that come with working under our umbrella.

So, what do you think?

Those are just seven reasons that your business might benefit from working with an umbrella company, all based on real challenges our clients faced before partnering with us. 

Whether you’re looking to get rid of the organisational headaches that payroll and regulatory compliance bring, or you’re looking to extend more benefits to your contractors, we can help. We’ve streamlined and optimised the payroll process for companies across the UK, and our decades of experience mean that you and your contractors will be in safe hands.

We’re good at what we do, but you shouldn’t just take our word for it. There are several factors to bear in mind when choosing an umbrella payroll company to work with, and we outline those in the next section.

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04. Looking for Payroll Services? Here’s how to Choose an Umbrella Company

If you’re a recruitment agency looking for the best umbrella company to partner with, you’re probably wondering where to begin. How do you determine the company who will align best with your business, your goals, and the needs of your contractors?

In this article, we’ll run you through nine criteria for selecting the best umbrella payroll company for your business to partner with. 

After reading, you’ll have the intel you need to make an informed decision, and you’ll be in good stead to revolutionise your organisation’s payroll affairs.

Why your company needs payroll services 

Before we get to that, though, maybe you’re wondering why your company needs payroll services at all? Maybe you’ve got an in-house team who’ve got things under control already. Or maybe there’s just not enough internal demand to justify outsourcing things.

If that’s the case, take a look at our guide on how to find out if your company needs umbrella payroll services.

Inside you’ll find several ways your business could benefit from partnering with an umbrella company. This covers everything from reducing the logistical challenges associated with running a business, to putting yourself in a position to offer more generous benefits to your employees.

How to choose an umbrella company 

When you decide to partner with an umbrella company, the next step is identifying the company that best aligns with your organisation’s goals and priorities.

Here are nine things to help you decide.

Do they have the right expertise?

The first thing you want to look at is the expertise on offer. Is your prospective umbrella company partner good at what they do? And do they have the credentials to back up the claims they make about their service?

When placing responsibility for your administrative and tax affairs in the hands of an external organisation, you want to be sure they're safe hands. 

Look at the claims they make, the credentials they use to back them up, and the feedback from customers who’ve experienced things first hand. Also, look into the people at the helm of the organisation, and what sort of internal philosophy and guiding ethics they bring.

The best umbrella payroll companies continually improve their knowledge and expertise and are not content to ride the wave of past success. UK tax legislation is continually evolving, and your partner organisation should pride themselves on being at the forefront of the industry.

You can also ask for evidence of compliance audits to ensure your umbrella company is compliant with all relevant legislation. 

What’s their reputation like?

Further to the above, dig deep into customer testimonials and feedback. Build a solid understanding of whether customers -past and present - are happy with the service they received. 

Try to prioritise feedback on third-party websites, if possible, as this is less prone to being cherry-picked and usually provides a more genuine and balanced impression of the company. Look for persistent negative comments as well as positive ones. 

This is an industry where prestige and experience count for a lot. Choosing an umbrella company with a good track-record gives you the peace of mind that you're not being taken for a ride. Spending time on this step can pay dividends later.

Making payroll payments

How do they make their payments?

Realistically, reliability and ease of payment are likely to be one of your biggest priorities when choosing an umbrella company. Does your prospective partner process payments quickly? Are there charges for same-day payments? Do testimonials from existing customers praise quick and easy payment, or do they begrudge slow payment accompanied by hassle?

An understanding of how your umbrella company makes a payment, and what guarantees they make around this, should be one of the first things you look to establish. The more clarity you can offer to your contractors, the more satisfied they’ll be working with you.

Do they offer any perks?

Some umbrella companies offer enrolment in pension schemes, referral benefits, and myriad other perks. Others offer their employees access to industry-specific benefits, or to material that will help them as they progress through their career.

At Optimum Pay Group we’re proud to enrol our employees automatically into our generous Nest pension scheme. This stems from a belief that work should be an investment in the future, as well as the present. 

Look to understand which perks - if any - your prospective umbrella company partner offers. These may not be deal-breakers, but they’re definitely deal sweeteners.

What costs do they carry?

Cost is the only way that legitimate umbrella companies can compete, and whether you’re an agency or a contractor, you will be directly impacted by the fees charged. Some of these fees are levied on individual invoices, while others are associated with joining and leaving the partnership.

While some companies may advertise high net take-home pay figures, you should be wary of these. Illegitimate companies may operate outside the law, and attempt to entice people in with the lure of a quick buck. However tempting this may be, bear in mind that such practices are likely to result in HMRC investigation later down the line, and this can be incredibly costly.

When deciding on an umbrella company, look at the gross weekly or monthly fee. Also, look to understand whether they charge a flat fee or a percentage of the invoice value. The latter can be tempting initially, but can quickly become very expensive when your earnings increase. 

Think about long-term costs and decide whether anything feels too good to be true. If it feels like it then it probably is, and it's not worth taking unnecessary risks only to be out of pocket later on.

Are they a genuine employer? 

To offer statutory benefits like sick pay, holiday pay, parental pay and so on, an umbrella company must provide an overarching contract of employment. This contract formalises the professional relationship between agency, contractor, and umbrella company, and is the basis upon which everything is built.

You need to understand whether the umbrella company you’re considering partnering with is a genuine employer. If not, it’s likely that they’re cowboys.

Can they advise on IR35 compliance?

The IR35 legislation sets out differences in taxation between employees and limited company directors. It distinguishes between legitimately self-employed contractors and 'disguised employees' - people whose relationship with an employer aligns more closely with traditional employees than outside contractors. 

While this may not sound important, IR35 is designed to ensure that the relevant amount of tax is paid by employees and limited company directors, and it sets out the criteria defining each. The legislation looks to prevent people from switching statuses for the sole purpose of enjoying greater tax efficiency; instead, defining your status by the nature and responsibilities of your role.

If your contractors are found to be violating the rules, you or they may be placed under HMRC investigation, which can result in paying back all of the tax that should have been paid.

It's simpler than it sounds, and it's vitally important that you're compliant. A good umbrella payroll company will help you to understand the IR35 and will be able to advise on compliance for yourself and your contractors under our employ.

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Who will answer your calls?

If you ring up with a query or concern, are you going to spend an hour on hold before speaking with someone who has zero experience with your account? Or will you get through quickly to a dedicated account manager who knows the ins and outs of your situation?

The latter is obviously far preferable, especially when it's your time and money on the line. At Optimum Pay Group we’re proud of our customer service staff, and they’re praised time and time again by our satisfied customers.

Are they user-friendly?

In our technological world, you should expect an umbrella company to have intuitive and easily-accessible systems where you can check your timesheets and expenses at any time. 

Look to understand whether this is part of the service you’ll receive, or whether you’ll be grappling with archaic and complicated user interfaces.

How do we compare?

We’re good at what we do, but as we said earlier, don’t just take our word for it.

We pride ourselves on delivering high-quality umbrella payroll services to all of our customers. We pay on time, in full, every time.

We’re confident that we can deliver on all of the points outlined above. 

By this point, you’re probably wondering about the costs associated with retaining the services of an umbrella payroll company. The next and final section runs through these costs, giving you the last piece of the decision-making puzzle.

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05. The Ultimate Guide to Umbrella Company Fees: What you Need to Know

Like any professional service provider, umbrella payroll companies charge for their services and for the convenience they afford to their customer businesses.

If you're considering partnering with an umbrella payroll company, you've probably got questions about the fees and costs you can expect to pay. In this section, we’ll answer all your queries and put you in good stead to make an informed business decision.

Calculating fees and charges

What fees and charges do umbrella companies carry? 

Here's a top-level breakdown of fees that you should expect to pay when working with an umbrella company.

Firstly, income tax and national insurance contributions will be deducted from your pay. This is in line with government legislation and goes straight to HMRC.

You'll also pay Employers National Insurance contributions as a contractor. Again, this goes straight to HMRC.

Then, you're charged either a fixed rate or a percentage fee of your gross pay. Being charged to be employed may not seem like the best deal, to begin with, but when you consider the benefits, it starts to make sense. You're outsourcing the need to worry about tax or invoice generation. 

Because the umbrella company takes payment before your income tax and NI are calculated, you can claim tax relief against these costs. 

Take some time deciding whether a fixed rate or percentage fee is best for your earning situation. A percentage fee may be more appealing if your income falls within certain brackets, but bear in mind that costs under this pricing structure can escalate quickly as your earnings increase.

We’ve built an in-depth payroll calculator that breaks down the different structures available and gives an insight into how umbrella company fees will factor into your take-home pay. Head over to our homepage to get access to the calculator.

What to look out for in terms of fees?

There are a few other fees to keep an eye out for.

Sometimes you'll be charged a fee to join or leave a partnership with an umbrella company. This charge covers the cost of adding or removing you from their systems and is part of the administrative cost of their operations.

You'll also pay insurance, with the exact types and levels depending on the type of contractor you are. For many contractors, especially new ones, this charge is probably unexpected. You may baulk at having to pay it initially, but it's worth considering the costs of not paying.

If you operate as a contractor without the relevant insurance, you place yourself at huge risk. Should anything go wrong and you are deemed liable, the costs of representing yourself legally and paying compensation to the person, people, or organisations affected can quickly spiral out of control.

Considering this, a small monthly deduction from your paycheck to keep you insured is a small price to pay for peace of mind - literally!

Though working with an umbrella company carries costs, some of which you may prefer not to pay, the benefits they bring to the table are enormous. If you break down the total fees paid over the year, then divide that by the number of hours you've saved through not having to submit a tax return, keep track of your expenses, generate and chase invoices, and so on, it takes the edge off. Think of it as a subscription fee for convenience and peace of mind.

Knowing that you're paying to retain the services of qualified professionals with plenty of expertise is good to remember, too. An umbrella payroll company is there to answer any queries you may have about payment or deductions. They bring their knowledge to the table to help you out, and because they're required to stay at the forefront of regulatory compliance, they can advise on how to keep your business affairs in order.

With IR35 compliance, for example, an umbrella company can help you to ensure you're acting within the law. By ensuring you operate as a genuine contractor rather than a disguised employee, you're kept safe from inadvertently violating any rules or getting any unexpected surprises from HMRC - the potential cost of which can include paying back all the tax you should have been paying.

Paying fees to an umbrella company helps to protect you against hefty costs associated with honest mistakes or oversights on your part - because let's face it, the majority of contractors made the decision to work that way to make things simpler. Partnering with an umbrella company saves you the stress and aggravation of keeping abreast of the latest regulations and the headache of dealing with myriad administrative tasks day-to-day.

Hidden fees

Which hidden charges do you need to be aware of? 

A good umbrella payroll company will clearly communicate any costs and fees at the start of your professional relationship. It's in the best interest of both parties that everyone understands the nature of the partnership and that expectations are set clearly from the outset.

If you head over to our Trustpilot page you can read hundreds of reviews from satisfied customers whose lives we've made easier. We're not in this game to catch people out with hidden fees to make a quick buck. We'd much rather build solid relationships on bedrocks of trust and mutual respect. We believe that this is where long-lasting and mutually satisfactory professional relationships come from. And so that's what we've baked into the heart of our business practices.

A summary of fees

Working with an umbrella payroll company carries certain fees and costs, and initially, some of these may seem unfair or unnecessary. This is especially true for new contractors who are unfamiliar with the nature and demands of the way they operate.

When choosing an umbrella company, look for one that communicates the fees and costs clearly. Make sure they're willing and able to answer any questions you may have, and that you're not pressured into a hard sell. This partnership will contribute in a big way to your peace of mind and job security, so it's important to get it right.

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The Next Steps

Hopefully, you’ve now got what you need to make an informed decision about whether to partner with an umbrella company.

You should have an understanding of -

  • What umbrella companies are
  • How the relationship between umbrella companies and recruitment agencies works
  • How umbrella companies interact with PAYE 
  • How umbrella companies interact with limited companies 
  • How payroll companies work 
    • for recruitment agencies 
    • for contractors
  • The kinds of services a payroll company provides
  • How to find out whether your company needs umbrella payroll services
  • The signs that your company may need an umbrella company 
  • How to choose an umbrella company
  • The fees and charges umbrella companies carry 
  • The hidden charges to look out for 
  • Why you should partner with Optimum Pay Group

If you’re still weighing up whether Optimum Pay Group would be the right umbrella partner for your business, here are some additional resources that may help - 

  • About OPG - our history and our ethos
  • About our team - the fine folks who you’ll be working with
  • Our blog - where you can find further expert-led content

If you’re looking for information on our umbrella services, you can check out our service page here.

And, of course, if you want to speak with one of our team about partnering with OPG, you can contact us here. We’re always happy to help.

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