How to Compare Umbrella Companies

Why Choosing the Right Umbrella Company Matters

If you're a UK contractor, an umbrella company can take the hassle out of tax, payroll, and compliance. But with so many providers advertising similar benefits, how do you actually spot a quality umbrella and avoid costly mistakes?

Let's break it down. Here are 20 practical points you should weigh up before signing on the dotted line.

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What to Look For: 20 Key Questions

1. Is an Umbrella Company Right for You?

• Pros: Faster setup than a limited company, less admin, includes statutory benefits like sick and holiday pay.
• Cons: Less tax-efficient than your own company, less control. Sometimes it's your only option if Off-Payroll (IR35) rules apply.

2. What Fees Are Charged?

• Fixed weekly/monthly fee or a percentage of your contract income.
• Fees are deducted pre-tax, but check if they're quoting net or gross costs.

Watch out: Percentage fees can eat into higher earnings, while net fees can disguise the real cost.

3. Are There Introductory Discounts?

• Some umbrellas offer low fees for your first few weeks (e.g., £10–£12/week).
• Always check the standard fee after the offer ends.
• Look out for hidden fees that might offset the initial saving.

4. Any Additional Costs?

• Watch for sign-up or exit fees, charges for same-day payments, insurance, or processing expenses.
• Sometimes umbrellas with no extras simply charge higher weekly fees.

5. What Are the Working Conditions?

• You should get an overarching contract of employment, including sick pay, holiday pay, and parental leave.
• Check for minimum guaranteed hours (at least one day/week or 336 hours/year) and mutuality of obligation.

6. How Does Holiday Pay Work?

• Statutory minimum is 28 days.
• Umbrellas may offer 'advanced' (paid as you earn) or 'accrued' (held until taken) holiday pay. Advanced is now officially recognised, but some providers keep unclaimed accrued pay.

7. What Business Insurance Is Included?

• Employers’ liability insurance is legally required.
• Most reputable umbrellas also offer professional indemnity and public liability insurance.
• Some policies exclude niche occupations—always check.

8. How Fast Will You Get Paid?

• Leading umbrellas pay several times a week after timesheet approval.
• Avoid any company with a 'we pay you when we're paid' clause; this isn't appropriate for employees.

9. How Do Payments Reach Your Account?

• Most use Faster Payments (often same day).
• Extra charges for fast payments are rarely justified—these are standard for UK banks.

10. How Often Are You Paid?

• Weekly, fortnightly, or monthly options.
• Confirm there are no deductions other than tax, NICs, and pension (unless you opt out).

11. How Simple Is the Payment Process?

• Online timesheet submission should be standard.
• Steer clear of paper-based or complex approval systems.

12. Is It a Genuine PAYE Arrangement?

• 100% of your pay should go via PAYE.
• Avoid umbrellas offering loan schemes, offshore payments, or split salary arrangements. These can trigger HMRC investigations.

13. Can You Reclaim Expenses?

• Rules tightened in 2016: only limited expenses, like mileage or accommodation, can be claimed (and only in specific circumstances).
• If you're under supervision, direction, or control, claims are even more restricted.

14. Do They Claim a 'Special HMRC Dispensation'?

• Dispensations mean receipts may not be needed for small claims, but the rules still apply.
• HMRC may still audit you, so keep receipts anyway.

15. How Are Pensions Handled?

• Auto-enrolment required if you’re 22+, working in the UK, and earning over £10,000/year.
• Default: 5% employee, 3% employer contributions (from your assignment rate).
• You can opt out.

16. What Is the Company’s Reputation?

• Google the umbrella, check how long they’ve been operating, and read reviews (with a pinch of salt).
• Ask colleagues or professional forums for recommendations.

17. Are They Accredited and Compliant?

• Look for FCSA or Professional Passport membership. These accreditations mean the umbrella’s processes have been independently audited.
• Some umbrellas use payroll auditing software (e.g., PayePass, SafeRec) for extra assurance.

18. Any Misleading Claims?

• Ignore boasts like 'HMRC-approved' or 'IR35-compliant.' HMRC doesn’t endorse umbrellas, and IR35 status depends on your working practices, not your umbrella.

19. How Good Is the Support?

• Is there a real person to help if something goes wrong? Fast, knowledgeable support is invaluable when you hit a snag.

20. Are They on Your Recruiter’s Preferred Supplier List (PSL)?

• Many agencies only work with specific umbrellas. Being on a PSL is a sign of due diligence, but always check the other points listed here—PSL inclusion isn’t a guarantee of quality.

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Quick Checklist: Comparing Umbrella Providers

Feature	Why It Matters	What to Look For
Fee structure	Impacts your take-home pay	Fixed fee, no hidden extras
Payment frequency	Affects cash flow	Weekly or more frequent preferred
Holiday/sick pay	Statutory rights	Rolled up or accrued, but always transparent
Insurance	Protects you and the client	Employers', PI, and public liability
Accreditation	Industry standards	FCSA, Professional Passport
Compliance	Keeps you safe from HMRC	100% PAYE, no offshore/loan schemes
Support	For when things go wrong	Responsive, knowledgeable
PSL status	May determine your options	Ask your agency if in doubt

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Next Steps: How to Choose with Confidence

• Research: Use the checklist above and compare a shortlist of umbrellas.
• Ask: Network with other contractors to get real feedback.
• Verify claims: Look for independent accreditations and avoid umbrellas promising 'too good to be true' schemes.
• Read the contract: Check for payment clauses, fee details, and your employment rights.

Choosing the right umbrella company is worth the effort. It’ll protect your income, your compliance, and your peace of mind as a contractor.