If you are a contractor, you have a number of options when it comes to payroll. You can set up your own limited company (if outside of IR35), or you can use an umbrella payroll provider.
The odds are that your contract is inside of IR35 and you have been instructed to use an umbrella payroll provider.
There are a number of benefits to using an umbrella payroll provider, but it is important to choose one that is compliant with the regulations set by both HMRC and the FCSA who ensure that you are both employed compliantly and paid compliantly.
What is an umbrella payroll company?
An umbrella payroll provider is a business that employs contractors and then pays them on the behalf of their agency under HMRC’s PAYE (Pay As You Earn) scheme. This means that the contractor does not have to worry about setting up their own payroll system or dealing with accountants or HMRC directly. The umbrella payroll provider will also take care of things like tax deductions and National Insurance contributions.
You should also be aware that the umbrella worker is also liable for the company costs which include the National Insurance Employers Contribution (NIERS) and the Apprenticeship Levy. This is down to the fact that an umbrella cannot cover these costs when only taking a low fixed period margin for the service.
Why should contractors use an umbrella payroll provider?
There are a number of reasons why contractors should use an umbrella payroll company. These include:
- Compliance: Umbrella payroll companies are regulated by the government and when accredited, the FCSA. This means that the umbrella is required to follow strict rules and regulations. This gives contractors peace of mind knowing that their tax affairs are being handled correctly.
- Convenience: Umbrella payroll providers take care of all the paperwork and administration associated with payroll, which can save contractors a lot of time and hassle.
- Cost-effectiveness: Umbrella payroll providers can often be more cost-effective than setting up your own limited company. This is because umbrella payroll provider can mitigate the accounting costs as well as the time-consuming task of bookkeeping.
- Inside IR35: If your assignment is found to be inside of IR35 then you don’t have many other options besides an umbrella or an agency’s PAYE option (which many agencies do not offer).
How to choose a compliant umbrella payroll company
When choosing an umbrella payroll provider, it is important to make sure that they are a member of the FCSA and compliant with the regulations. You can check this by looking for the logo of a reputable umbrella payroll association on their website. You should also ask the company about their experience and their track record as well as what makes them better than the competition.
Here are a few things to look for when choosing an umbrella payroll company:
- Reputation: Make sure that the provider has a good reputation. You can check this by reading online reviews or asking other contractors for recommendations.
- Experience: The provider should have experience in dealing with contractors. This will ensure that they are familiar with the specific needs of contractors.
- Cost: The cost of using an umbrella payroll provider can vary. Make sure that you compare prices before you make a decision.
- Accreditation: Most agencies and end clients now require workers to work with FCSA accredited umbrella’s. This means that adherence to all HMRC guidelines are met.
If you are a contractor, using a compliant umbrella payroll provider is a wise choice. This will give you peace of mind knowing that your tax affairs are being handled correctly, and it will save you time and hassle.
Payments Pro have been serving contractors for over five years now and have a proven track record for contractor happiness. Combined with both worker and agency communication as well a low fixed weekly fee. We are the optimal choice when choosing an umbrella payroll provider.