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. With that in mind, we've written this article to answer all your queries and put you in good stead to make an informed business decision.
After reading, you should have a solid understanding of what you'll pay, what the cost will cover, and the benefits your business will enjoy.
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.
Which hidden charges 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.
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.
Give us a call today and we'll be happy to talk you through our service, along with the benefits it will deliver.