Contractor guide to registering with an umbrella company

So you are joining an umbrella company – maybe you’re happy about it, or perhaps you feel frustrated at becoming somebody else’s employee?!

Check out reviews, look for accreditations…

Despite what you might have heard, there are some good umbrella companies out there so don’t be put off by some of the horror stories. That doesn’t mean you shouldn’t do your research (remember to check out reviews, look out for accreditations), to make sure you are joining a reputable umbrella company

But how does registering with an umbrella work? Is the joining process as drawn out as applying for a mortgage or as simple as getting a new mobile phone contract? Well the truth is, registering with an umbrella company is somewhere in-between, writes Shelley Ankers-Wainwright, owner of umbrella company compliance consultancy SAW Consulting.

Umbrella company sign-up: first thoughts, steps

Remember, when you join an umbrella company, you become an employee (of the umbrella company), so there is lots of information they need from you.

Once you have found an umbrella company you are happy with, give them a call and explain that you have a new contract lined up and you would like to register with them.

Some umbrellas are more ‘salesy’ than others. Some will offer you upgrades and add-ons for various things like rewards schemes but if you are new to umbrella, I would suggest just going for the basic package and then you can think about add-ons later down the line.

Margin

While it may seem unusual to ‘pay’ an employer, you do have to pay an umbrella company for processing your pay and for the associated admin.

Also, when employed through an umbrella company, you are covered by their company insurance policies. The fee is usually referred to as a ‘margin’ and can range between £10 - £30 per week. Expensive doesn’t always mean the best and cheap doesn’t always mean the worst. Ideally, ask a fellow contractor who they use and get some genuine testimonials from people you trust.

Umbrella company registration process

Most umbrellas will let you sign-up over the phone and some will direct you to an online registration form. Make sure you do get to speak to a human at some point -- to ask any questions that you might have.

You will be required to provide the following information, as a minimum, to join an umbrella company:

• Full name
• Address
• DOB
• National Insurance Number
• Bank account details – make sure this is done in a secure manner
• Contract information – start date, rate of pay etc
• Recruitment agency/ end-client details, so the umbrella can make contact and get everything set up.

At this stage the umbrella company should provide you with a ‘Pay Illustration,’ to give you an example of what your take-home pay will be. If they do not offer this, then make sure you ask for it. You should have also received a Key Information Document (KID) from your agency.

Right To Work

As an employee of the umbrella, you will have to prove your right to work in the UK.

You will be asked to provide a passport if you are a UK National or a visa/share code if you are from outside the UK. The umbrella will provide you with a suitable list of acceptable documents.

Proof of Address

Most umbrella companies will ask you for proof of address. Again, they will usually provide you with a list of acceptable documents.

P45/ New Starter Checklist

To ensure you are put on the correct tax code, the umbrella will ask for your most recent P45 or will send you a link to the HMRC new starter checklist form.

Contract of Employment

Once the initial registration is complete and the umbrella has contacted your recruitment agency or end-client, they will issue you with a Contract of Employment and Assignment Schedule.

It is important that you read though both of these documents and make sure everything is as you expect. Don’t be pressured in to accepting either document, and if something doesn’t look right or you don’t understand something, ask!

Pin down holiday pay

At this stage, one thing to look out for is how your holiday pay is going to be processed.

There are mainly two options with umbrella companies and holiday pay. ‘Advanced’ holiday pay, which is paid out to you within every payment (which means you don’t get paid when you take a holiday). Or ‘Accrued’ holiday pay, meaning the umbrella company withhold your holiday pay and pay it out to you when you take a holiday.

Make sure it’s clear how you’re holiday pay will work and then when you start receiving payments, make sure it’s as you were expecting.

Once you have accepted your contract, you are officially an employee of the umbrella company, meaning they can now legally process your pay and you are covered to be on site and are entitled to statutory benefits.

What happens in the background?

While you are registering and providing all your information, the umbrella company will be entering into a contract with the recruitment agency/end client and getting the details of the assignment you will be doing for the client.

The only contract you will have, though, is with the umbrella company – you will never have a contract with the agency or end client.

What happens next?

A lot of the next steps depend on the umbrella company’s specific processes. Some will ask you for a timesheet, others will get that information from your agency. Make sure you ask what the process is for getting paid so there are no delays!

Next, the agency will pay the umbrella, and the umbrella will make all necessary and legal deductions for tax, national insurance, and the margin you have agreed to pay. Apprentice levy and pension contributions will also be deducted if applicable.

The umbrella company will then pay you directly in to your bank account and send you a payslip so you can see the breakdown of pay.

HMRC considerations

From your side, you do not need to submit anything to HMRC when registering with an umbrella company. This will all be done by the umbrella company via RTI (Real Time Information).

If your only income is paid to you via the umbrella company, then it is likely you don't need to submit a personal tax return to HMRC. However if you have other income streams, then you will need to submit one. It’s worth asking the umbrella company if they can support you with tax return matters should you think you need to file a tax return. Many brollies have an accountancy arm to their business, so that may helpful.

How do I switch between umbrella companies?

Remember, it should always be your choice but if you are happy to switch from one umbrella to another umbrella then the process is very simple.

You are not tied into an umbrella, so simply contact them and ask for your P45. Don’t forgot to also ask for any outstanding holiday pay if the umbrella has been accruing your holiday pay for you.

With those particulars sorted, you can go ahead and join a new umbrella at any time. Just make sure your agency or end-client are aware and don’t send any further money to the previous umbrella, as it could result in a delay to your pay!

Know before you go (register with an umbrella company)

It shouldn’t feel like hard work to join an umbrella, and the whole process should take less than a day, providing everyone cooperates and sends all relevant documents in good time.

Always remember to ask questions if you don’t understand something, and never feel pressured in to agreeing to extra bells and whistles you don’t need. Happy umbrella contracting!