As a contractor it’s highly likely that you have business peers who are ‘employed’ by an umbrella company and at some point they’ve outlined the benefits of doing so. If such a scenario is yet to take place it’s about high time that you familiarised yourself with the benefits of ‘working’ for an umbrella company, even if you don’t decide to make changes to the way you’re employed.
There are a number of benefits associated with working for an umbrella company, however, whether these benefits will extend to you as a contractor depends on a variety of factors, including whether or not you have business expenses you’re looking to offset, your wages, the frequency and length of your contracts and a wealth of other factors.
What is an umbrella company?
According to Wikipedia, an umbrella company can be defined as ‘a company that acts as an employer to agency contractors who work under a fixed term contract assignment’. This kind of contract usually takes place through recruitment agencies in the UK, though it isn’t uncommon for contractors to source their own contracts and enter into an employment contract with an umbrella company to take advantage of the benefits afforded to them by doing so.
The HMRC’s IR35 legislation is widely considered responsible for the increased prevalence of umbrella companies – an estimated 14% of professional contractors in the UK are employed in this manner – because this legislation has created tests that are used to determine the employment status of these contract workers – there are 4 million temporary workers in the UK – and their ability to claim tax reliefs.
Why contract work and umbrella companies?
There are a plethora of reasons why people choose to temp or engage in contract work rather than enter into a traditional employment contract where they work for and get paid by the one company, though these reasons are usually fiscal or personal and therefore differ from person to person.
Whatever the reasons for opting for contract work rather than employment in the traditional sense, there are some excellent reasons given by contractors as to why they choose to work for an umbrella company in London rather than manage their own employment and all that entails. One of the most prominent reasons given by contractors for entering into an employment contract of this nature concerns the ease of working as an ‘employee’ as opposed to being self-employed.
When you work as a contractor you need to take care of your own paperwork, not to mention dealing with taxation issues, tax returns and a wealth of other considerations. However, when you work as an ‘employee’ you no longer have to give thought to these concerns, which provides you with time to concentrate on more important considerations, like sourcing lucrative business contracts.
Here are a few commonly cited benefits of becoming an ‘employee’ of an umbrella company.
- Compliance with HRMC’s IR35 and similar legislations that affect contractors
- The opportunity to claim or offset legitimate business expenses
- Professional insurances like professional indemnity insurance are often included
- Payments can be made through PAYE
It’s important to remember that these companies generally offer a variety of employment solutions – it’s remarkably easy to source a solution suitable for your needs despite the number available – so you’re advised to get in contact with representatives from several companies before entering into an employment contract with one.
By thoroughly exploring the employment solutions available to contractors, you’re putting yourself in the best possible position in which to reap the many benefits that entering into an employment contract with an umbrella company provides.
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