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Contractor umbrella companies – how to choose one

October 11, 2011

Aside from limited companies, the umbrella company is the second most popular business structure used by contractors and freelancers.

The last decade has seen the emergence of hundreds of new umbrella schemes, so it may seem a difficult task to select the right one for your business. Here are some tips on what to look out for when joining an umbrella company.

Umbrella companies – what to look out for

1. Fees – a reputable firm will have a transparent fee structure, typically split between weekly or monthly billing. Some companies charge a percentage of your invoice value, which can become very expensive if you’re a high earner.

2. Existing Clients – how many existing freelancer / contractor clients does the umbrella company have, and are you able to view testimonials from any of them. Also, how long has the scheme been running for?

3. Agencies – many of the leading umbrella companies are ‘preferred suppliers’ to recruitment agencies, so chances are you may encouraged to join a select number of schemes. You are under no obligation to do so, and make sure you do your homework on any umbrella companies you are contemplating signing up to.

4. Insurance – most umbrella company schemes will offer public liability, employers’ liability, and professional indemnity insurance cover as standard. Find out more about the typical policies available in our guide to IT contractor insurance.

5. Marketing Chat – watch our for phrases such as “we’re IR35 compliant”, or “HMRC approved” in the marketing material issued by some umbrella companies. All umbrella schemes are taxed the same way, there are no exceptions to this rule.

6. Extra Costs – beware of schemes which charge sneaky entry and exit fees, or similar additional costs. Make sure you receive a full list of charges before signing up.

7. Online – given the widespread use of the web, you should seek a web-enabled umbrella scheme for ease of use. Everything from timesheet submission to claiming expenses can all be completed online these days.

8. Customer Service – for many contractors, good service is top of the list when it comes to choosing business services. You should get a ‘feeling’ about any schemes you contact, and you will find that many now offer money back guarantees and agreed response times to queries.

9. Switching – if you encounter problems with your current umbrella scheme operator, it isn’t that difficult to change schemes, as most major schemes can easily handle the transient nature of contract workers.

10. Recommendations – by far the best way to select a good umbrella company is via recommendations from current contractor colleagues.

Try Bytestart’s guide to how an umbrella company works.