Be it a lack of transparency about what they do or because of misinformation in the public domain, working for an umbrella company can seem confusing.
We’re working with information from the Low Incomes Tax Reform Group (LITRG), part of an educational tax charity; and PRISM, an umbrella company representative body. Below, Mango Pay offers advice and guidance to help you understand more about what it means to work for an umbrella company. We will also look into what you – the worker – should look out for to avoid any problems.
What is an umbrella company?
Let’s start with the fundamental question! Umbrella companies are businesses that take on agency workers and other types of temporary workers as their employees with continuous contracts of employment. To meet the rules for ‘continuous employment’, the umbrella company must pay you for 336 hours of work per year at the minimum wage.
Mango Pay Tip: If you’ve been employed by an umbrella company for more than a year, ask them if any of the 336 hours remain unpaid.
Why have I been told to use an umbrella company?
While it used to be common for agencies to handle a worker’s pay themselves, they are now increasingly opting to save time and money by suggesting people use an umbrella company. It’s legal for them to do this, although when they pass you over to an umbrella, they should make sure they also hand over sufficient funds to cover all of the employment costs the umbrella company will now have, including the amount to cover the umbrella company charge.
The umbrella company becomes your employer, meaning they will deal with your pay and other employer obligations, as opposed to the agency. This includes paying your wages, with tax and National Insurance deducted as required by the Pay As You Earn (PAYE) system.
Mango Pay Tip: If you would prefer to be paid by the agency rather than the umbrella company then you should try talking to the agency to see if this is possible. Many agencies are, however, not able to pay weekly temporary workers directly. That means it is often not possible for you to be employed or paid by the agency.
How does an umbrella company work?
Here’s where the umbrella company fits into the process and how it works:
- End client: You work for the end client, in many cases under their supervision, direction and control. The end client pays the agency that placed you.
- Agency: The agency retains a margin and pays the umbrella company for your services.
- Umbrella: The umbrella company retains its margin and covers all of the employer costs. In rare cases, certain allowable expenses could be reimbursed to you at this point. That happens when, in performing your duties, you’re not controlled, directed or supervised. You’ll earn the remaining money through PAYE.
What are my employment rights if I use an umbrella company?
As you’re an employee of the umbrella company, you have the same rights as any other employed person. These include the following:
- Right to minimum wage.
- Paid holiday.
- Auto-enrolment into a pension (if you meet the earnings threshold).
- Statutory benefits such as sick pay and maternity pay (provided you meet the relevant criteria).
You can find more information about employee rights on GOV.UK.
It’s worth noting that, as an agency worker, you would get the main employment rights even if you didn’t work through an umbrella company. However, work for an umbrella company can be beneficial in other ways. For example, it can provide a continuous payroll link from one assignment to the next. This will prevent problems like emergency tax when you start a new assignment through an agency. Some also offer advances in payment and even shopping, restaurant and gym membership discounts.
Mango Pay Tip: Umbrella companies will advertise different perks, which may or may not be relevant to you depending on your circumstances. You would be wise to weigh things up carefully before choosing the right umbrella company for you.
Where can I get more help?
LITRG offers general, helpful tax information, including more on agency workers, umbrella companies, travel expenses, auto-enrolment and more.
PRISM is a not-for-profit professional trade association that represents umbrella companies. Furthermore, it offers workers helpful information and the opportunity to raise a complaint about any of its members.
Stay tuned to the Mango Pay blog in the coming weeks to find out more about working with umbrella companies. We will tackle your rights and entitlements, and what to look for when choosing one. Read more about our umbrella solutions, or contact a member of our friendly team for no-obligation advice and guidance.