What to Expect When Contracting as an Umbrella Employee

Being a contractor opens up new opportunities but before jumping, it is important that you understand things about it. Contracting is considered an alternative to a full-time employment. As a contractor, you will provide services or skills for a limited period of time to your client.

The thing about contracting is you will work for yourself instead of an employee of the company. This means that you have more control over your hours and rate of pay for the services rendered. Additionally, you have the responsibility to source your own clients. A common misunderstanding about working as a contractor is that you will struggle to find a client.

Tax For Contractor

The truth is, companies seek contractors, not the other way around. There are two ways for contractors to operate – through an umbrella company or by establishing the limited company. If you are a new contractor, it is recommended that you start through an umbrella company. Here’s what to expect when contracting in a Parasol Umbrella Company

        • Service fee: if you consider an umbrella company, you should expect to be charged for their services. Keep in mind that under an umbrella company, they will handle your taxation and administrative tasks. This leaves you free to focus on your specialist role. For this, you will be charged. Most umbrella companies use a fixed or percentage model when charging for their services. If a fixed fee, you should expect to pay around £30. If the company prefers percentage fees, you should be cautious as it can quickly add up. You will tend to pay more if you secure a lucrative contract.

  • Holiday allowance and sick leave: some umbrella companies pay additional 12% to cover the annual leave while there are others that require you to take statutory annual leave. With this, it is crucial that you find out what the company prefers and how it will be reflected in your payslip. Any umbrella company is bound legally to pay statutory sick pay after 4 days of successive days away from work.
  • Insurance cover: umbrella companies are also bounded legally to hold Employers’ Liability insurance. This is beneficial for you as it can protect you in case you become injured or unwell at work.
  • Online portal: you already know that an umbrella company will handle all your taxation and administrative tasks. However, there is one thing left for you to do – submit a timesheet. You need to submit regular timesheets because the umbrella company will need this to send an invoice to the client before you will be paid. To make things easier, umbrella companies have online portals where you can add information instead of faxing it. With this, you should expect an online portal.

      • Customer service: most umbrella companies offer customer service. This is an important feature in making you feel secure and comfortable.

For seasoned contractors, they prefer forming their own limited company because it is the most tax efficient way to operate. If eventually, you consider forming a limited company, you should make sure that you understand everything especially the IR35 tax legislation.

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