Choosing to be paid by an umbrella company is a good idea if you want to minimise financial risk and the toilsome admin that running your own limited company entails.
However, it’s important to remember that umbrella company fees exist.
An umbrella company mainly handles the paying of a freelancer or contractor’s wages through Pay As You Earn (PAYE). This means it also takes care of deducting tax like national insurance from your income, and they should do so at the same rate for salaried employees at a regular company.
Do umbrella companies charge?
For those wondering ‘how much do umbrella companies charge‘, it’s worth noting their charges are often known as a ‘margin’ rather than a ‘fee’.
This margin is the sum that an umbrella company keeps for itself to cover its costs.
Umbrella companies usually charge for their services in one of two ways:
- A fixed fee
- A percentage fee
A fixed fee is a sum deducted from a worker’s pay on a weekly or monthly basis. This is the most common.
Alternatively, a percentage fee involves taking a cut of each individual invoice.
If you have any doubts about the how your take-home pay is calculated, then we’d recommend consulting an expert for advice.
Using an umbrella company comparison service, like the one provided by Umbrella Tracker, can help you to avoid any pitfalls.
For your peace of mind, we only compare accredited umbrella companies fully vetted by our professional team.
How much do umbrella companies charge?
For those asking ‘how much does an umbrella company charge?‘, as you’d probably expect, the figure changes according to the type of umbrella company and the services it provides.
However, as a rough guide, the fixed fee charged by umbrella companies is usually between £20 and £30 a week (or £80 to £120 per month).
It’s important to remember an umbrella company still must complete the same administrative duties no matter what your income is.
What percentage do umbrella companies charge?
As outlined above, some umbrella company charges may consist of claiming a percentage of a temporary worker’s earnings rather than a regular fixed administration fee.
The proportion is different depending on the umbrella company itself and the services it offers to employees.
For example, if an umbrella company charges a two per cent fee and you take home £3,500 in a month, the deduction would be £70. If you then earn double the following month, its fee would be £140.
However, percentages fees are usually capped, so the proportion reserved for an umbrella company should never exceed a pre-agreed ceiling.
Why do umbrella companies charge so much?
As discussed previously, the fees charged by an umbrella company directly impact your take-home pay.
For that reason, as we stressed at the outset, it’s vital that as a worker you understand how these fees work to have peace of mind you’re being treated fairly.
Opting for an umbrella company that’s transparent about its pricing and doesn’t charge hidden extras or exit fees can help you to keep more of your money.
Be prepared to do your research; those with apparently low fees may ask for additional payment to cover the cost of requesting paperwork such as a replacement payslip or a reference in support of a mortgage application.
Try to find out if you can speak directly to a staff member if you have question or need support from an expert on tax affairs.
An inability to access either may negate the apparent benefit of paying a lower fee.
An umbrella company’s operating costs consist of the services provided that remove the responsibility of payroll administration and meeting tax obligations from your shoulders.
These tasks including making appropriate tax calculations while ensuring compliance with relevant UK tax legislation.
However, it’s important to remember an umbrella company is an employer and not simply a payroll manager.
For that reason, it must have appropriate and comprehensive insurance so its contractors are covered to attend client sites – a significant sum that has to be factored into its running costs.
Providing a payroll solution for temporary workers requires a purpose-built system operated by trained staff – both of which are expensive to acquire.
While a majority of compliant and well-run umbrella companies will ensure you’re paid on time, every time, there’s always a risk of delays beyond their control.
By way of mitigation, a growing number advance money to their employees to cover payments owed on those occasions when funds are not swiftly transferred from the recruitment agency – another factor that impacts costs.
At Umbrella Tracker, we understand it can feel overwhelming at first.
If you want to learn more about umbrella company costs, it makes sense to seek advice from a suitably qualified professional who understands the marketplace.
Contact Umbrella Tracker today
At Umbrella Tracker, we’re passionate about helping contractors find the best payroll solution for them.
We help you take back control of your payroll by comparing thousands of fully vetted umbrella companies in the UK.
Regardless of whether you work in the healthcare, medical, social care, or IT industry, we understand the importance of doing your research before you commit to an umbrella company.
This is why we offer temporary workers across the UK free, personalised comparisons and unbiased advice, helping you to find the most suitable umbrella company for your specific requirements.
Why not contact us today by filling out the handy form on our website?
Alternatively, give us a call on 0203 026 3303.
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