Finding a good umbrella company

Tips to get you started

• There is no single definition of an umbrella company. Anyone can set up a company and label itself an umbrella company. Some umbrella companies are not compliant with employment and tax law and the sector is currently unregulated. It is vital that you are on guard.
• In particular, be aware that some agencies are incentivised by a commission into encouraging you to join certain umbrella companies. Do not go with an umbrella company just because it is on your agency’s ‘preferred supplier list’, or just because it has certain accreditations (more of this below under the heading Other checks) – you still need to do your research thoroughly.
• Be clear on what rate your agency is quoting you to work through an umbrella – is it the PAYE rate (the rate they would pay you if you worked through them) or is it the ‘uplifted' rate (that is, the PAYE rate plus all the ‘on top’ employment costs the umbrella company will now have)? It should be the latter (uplifted rate).
• Make sure your umbrella company is not a disguised remuneration scheme! As explained on our dedicated page, HMRC probably will not go after the umbrella company for unpaid tax; they will go after you.
• Make sure you do not get caught up with problematic ‘mini’ umbrella companies or any of the other non-compliant arrangements set out on our main umbrella company page.
• Check how the umbrella company will deal with your holiday pay – if it is not on a ‘rolled up’ basis, ask them to confirm the circumstances in which you may lose the holiday pay (for example, if you do not request it before the end of the holiday year). If you leave the umbrella company, ask them to confirm that all outstanding holiday pay will be paid to you with your final payment. If you don’t get any holiday pay at all, this is a warning sign that you could be in an elective deduction model – see our ‘explainer’ for more information.
• Do not get swayed by all the different ‘perks’ that may be advertised. Some of these may be worth very little, for example, same day bank transfers (which are pretty standard these days), or may not be relevant to you (for example, tailored mortgage deals). Some may carry an extra cost over and above the standard ‘margin’.
• Similarly, do not get swayed by all the logos and badges that umbrella companies sometimes display on their website. They may not mean what you think – for example, some umbrella companies may be allowed to display logos that appear to ‘approve’ them after they have simply agreed to follow some principles. They may not have actually been checked or verified by the body and/or there may be no real policing of the use of the logo.

Involving your agency

As well as carefully checking things yourself, you might want to try and involve your agency. A good agency should be concerned to make sure that any umbrella companies they work with are meeting their legal obligations – not just because it protects workers but because it can protect them too.

Agencies have access to official government help and information (on GOV.UK) on how to do due diligence to assure their supply chain. HMRC have published guidance on GOV.UK aimed at helping agencies that hand workers over to umbrella companies. This guidance will also help workers, as it shines a light on the different relationships and obligations that exist between agencies and umbrella companies. Understanding what you should look out for will inform you, protect you and ultimately help you to navigate through the world of umbrella company working.

There are even commercial tools in the marketplace available to agencies, that can read and audit umbrella company payslips. They then cross-reference the audit with the assignment rate (that is, the amount paid by the agency to the umbrella company) and the pay and tax information that has been sent to HMRC by the umbrella. The combination of these three steps means that they can identify when workers are being paid in a non-compliant way, but also other potential pay and tax skimming/abuses by umbrella companies.

  One such tool is now available to workers directly via LITRG – see our Free umbrella company payslip audit page. 

There are of course other ways of agencies checking umbrella companies, but the key point is that agencies have a role to play here.

Other checks

HMRC have now released a tool that can help umbrella company workers check whether their pay and deductions are being handled properly. We explain more about the tool on our main umbrella company page.

  There are lots of net/take home pay calculators in the umbrella market. The resulting calculations may not be reliable. Many illustrations are based on assumptions that are not realistic/do not apply (for example, by automatically including expenses where there is no eligibility), probably with a view to appealing to those looking for higher 'take home pay’ returns and win business. Indeed, calculators can sometimes be incorporated into comparison websites that are shop fronts for disguised remuneration providers. 

There are some other basic checks you can do as part of your research before you sign up to work for a particular umbrella company. For example:

• You could check the umbrella’s website, find them on social media, look up other websites (sites like Trustpilot feature umbrella company profiles) and look for news and recent events about them.
• It is a legal requirement for a limited company to display their Companies House registration number (as explained on GOV.UK), which allows you to check things like whether the business is financially strong and stable, whether filings are up to date, and who the directors are. If your umbrella is a limited company, you could check they are registered on Companies House, that their records look up to date and don’t look unusual in any way. More information can be found on GOV.UK here.
• You should check what insurances etc. they hold, for example, professional indemnity, employer liability, and public liability. Some may hold cyber security insurance.

You may ask – is there a public list of ‘good’/compliant umbrella companies who satisfy relevant criteria that I can use to help me choose? The short answer is no, as umbrella companies are not currently regulated. However, in the absence of this, there are different ‘accreditation’ type bodies in the industry that set standards that umbrella companies should meet, for example Professional Passport or the Freelancer & Contractor Services Association (FCSA). Where an umbrella holds either accreditation it is a sign that the umbrella company has met the standards for that body.

However, umbrella companies do not have to join either of these bodies, it is a choice for each umbrella to make. There may be nothing wrong with an umbrella company that is not accredited. On the other hand, it is possible that even if an umbrella is accredited, you could still find problems (which should be reported to the relevant accreditation body).

That is why it is extremely important that you always do your own research into any umbrella company.

Going beyond basic compliance…

There is more to being a ‘good’ umbrella company than merely dealing with pay and taxes compliantly, although, of course, that helps! Thinking about wider aspects of how umbrellas operate, in our view, there are a few potential hallmarks of best practice to look out for. These include:

• Maintaining open and consistent communication with workers regarding pay, processes, policies, and any changes. This should mean good customer service, quick response times and proactive updates if day to day business is disrupted for any reason (for example because of a cyber-attack).
• Making workers feel comfortable to approach them with questions, feedback, or concerns. Indeed, ideally, we think a good umbrella company should have a published complaints procedure and also provide a ‘bricks and mortar’ UK address on their website where complaints can be sent.

HMRC have recently issued a comprehensive document outlining other examples of best practice for umbrella companies, which you may find helpful. It is essentially, a ‘what good looks like’ for the umbrella company market. It is written for umbrella companies, but will be useful to workers as well – because if you conclude that an umbrella company is not demonstrating good practice in line with the guidance, you may choose not to work with them.

The new guidance can be found on GOV.UK.

Recommendations

Feel free to ask colleagues and friends for recommendations, but just be careful – some non- compliant umbrellas (particularly those that use disguised remuneration) pay large referral fees which may incentivise them to encourage others to join up. Just because they say something like ‘everyone is using it’ or that ‘it works and we take home more money’, does not mean it is legitimate. Also, don’t let the fact friends or colleagues seem to have been in non-compliant arrangements and nothing has happened (so far) sway you. HMRC action could be just around the corner.