The employment benefits umbrella companies can provide contractors with

To work through an umbrella company or not to work through an umbrella company? That is the question which contractors who previously operated via their own limited company are asking themselves more regularly since the changes to the off-payroll working rules came into force just over a year ago.

In my previous article we examined some of the factors to look out for when entering into a contract of employment. Now, exclusively for ContractorUK, I will consider some of the employment benefits of using an umbrella company, writes Hannah Morrison, senior associate at law firm Brabners LLP.

1. Continuity of employment

Most umbrella employment contracts are designed to be overarching, meaning that the employment relationship between umbrella company and contractor continues even after an assignment ends.

The effect is that a contractor can move from assignment to assignment, or even agency to agency (subject to their PSL requirements) while remaining employed by the same umbrella company.

Being able to demonstrate continuity of employment can be helpful for contractors, notably when it comes to things like securing a loan. A minimum period of continuous employment is also a requirement for certain other rights, such as entitlement to maternity and paternity pay (more on that below).

2. Pay for time off

Contractors working under a contract of employment are entitled to take and be paid for all types of statutory family leave; namely, maternity, paternity, adoption and shared parental leave, as well as parental bereavement leave, provided they meet the qualifying criteria.

Admittedly, statutory paternity pay, for example, is currently only £156.66 a week (or 90% of your average weekly earnings, if lower) for up to two weeks; a measly amount compared to some other countries. Nevertheless, self-employed contractors are not entitled to any paid leave on the birth or adoption of a child, so it is a benefit worth having.

Employed contractors who are unable to work due to sickness are also entitled to receive Statutory Sick Pay (SSP) -- again subject to meeting certain qualifying criteria. The going rate for SSP is currently £99.35 per week for up to 28 weeks’ sickness absence.

Employees are also entitled to a minimum of 5.6 weeks’ paid holiday a year. This could potentially increase further if you work for the same client, in the same role, for at least 12 weeks and the client’s staff are entitled to more than 5.6 weeks’ annual leave (see “AWR rights” below).

3. Pension

Many contractors will already have their own private pension, but eligible contractors employed by an umbrella company must also be “auto-enrolled” into a workplace pension (although you can choose to opt-out if you wish).

Under the auto-enrolment regime, your employer (the umbrella company) must pay contributions into your workplace pension – as must you. And currently the minimum employer contribution is 3% of your qualifying earnings.

4. AWR rights

Unlike self-employed contractors, virtually all workers employed through an umbrella company are classified as agency workers under the Agency Worker Regulations 2010 (AWR), which entitles them to certain rights while working on an assignment.

Certain AWR rights exist from day one, such as the right to access any collective facilities or amenities which are offered to permanent staff of the client you are working for (such as a staff canteen, prayer room or transport services).

Furthermore, if you have undertaken the same role with the same client for 12 continuous calendar weeks, you will become entitled to the same “basic working and employment conditions" as you would have been entitled to for doing the same job, had you been recruited by the client directly.

Effectively, this means that you become entitled to the same relevant terms and conditions as a permanent member of the client’s staff doing the same role as you. This is sometimes known as parity or ‘equal treatment,’ and is designed to ensure that agency workers on longer-term assignments are no worse off than permanent employees with respect to:  

• basic pay (which also includes overtime rates, shift allowances and certain other payments);
• paid annual leave (holiday);
• duration of working time;
• any night work carried out;
• rest periods; and
• rest breaks.

Finally, if in doubt try to talk it out…

Unfortunately, not all umbrella companies are legitimate or legally compliant and they give the industry a bad name.

Be aware of umbrella companies which seem too good to be true, such as those which offer “non-taxable” pay elements which could be a sign of a tax-avoidance scheme. However, compliant and reputable umbrella companies should gladly discuss with you what employment benefits you are entitled to, so do ask!