Umbrella Company Myths Unfairly Tarnish Compliant Payroll Intermediaries
Legitimate, compliant umbrella companies such as Exceed Contracting Limited, play an important role in helping contract workers retain the flexibility of temporary work, while benefiting from continuous employment.
Compliant umbrella companies who employ and pay contractors are a vital and often unsung part of the contracting eco-system, but they’re commonly misunderstood and tarnished with untruths.
The Umbrella Payroll specialists at Exceed address some of the most common umbrella company myths in this article.
Myth 1 – Umbrella companies are dodgy
Fact 1 – Compliant umbrella companies provide vital services
Legitimate umbrella companies have been unfairly tarnished by the activities of unscrupulous loan scheme operators, who are NOT umbrella companies.
Compliant umbrella payroll operators like Exceed Contracting Limited, part of the Exceed Outsourcing group, are fully transparent in their dealings, and make all proper tax and NI deductions.
When comparing umbrellas, look for an independent compliance accreditation from the likes of PayePass and Professional Passport.
Our compliance is guaranteed and insurance-backed by both PayePass and Professional Passport.
Myth 2 – Umbrellas have no advantages
Fact 2 – Compliant umbrella companies have lots of benefits
Umbrella Company solutions provide a host of advantages for temporary workers (and recruitment agencies too) that go far beyond just payroll.
Umbrella payroll advantages include:
- Continuous employment
- Single tax codes
- Insurances cover
- Expenses tax relief
- PAYE tax compliance
- Statutory rights and benefits of employment, such as:
- maternity leave entitlements
- paternity leave entitlements
- annual leave entitlements
- sick pay
- pension contributions
Exceed Contracting also provide contractors with a contractor discount scheme which provides exclusive discounts and money saving opportunities with hundreds of leading UK retailers, plus an online learning academy.
Myth 3 – Umbrellas deduct extra tax
Fact 3 – Compliant umbrella companies receive extra income to pay taxes
Critics of umbrella companies often focus on the apparent deduction of Employer’s National Insurance from contractors pay.
This is misleading, and a misunderstanding of the true situation which is that:
- The umbrella company is the Employer and is legally bound to pay Employer’s NI.
- Employer’s National Insurance is therefore factored into the calculation of a contractors’ umbrella assignment rate.
- The umbrella assignment rate that is paid to an umbrella for an assignment is uplifted to fully cover the Employer’s NI deduction.
- The umbrella assignment rate, is NOT the contractor’s rate of pay. If they were not paid by an umbrella company, the contractor’s own rate of pay would be lower than the umbrella rate.
- Employer deductions are made from the already uplifted assignment rate, and NOT from the contractor’s gross pay.
Unfortunately many umbrella operators have not been sufficiently transparent about this process, which has led to the development of this myth.
Compliant and reputable umbrella company operators like Exceed Contracting make the treatment of taxes crystal clear in their payslips and materials for contractors.
Myth 4 – Umbrellas are a brand new concept
Fact 4 – Umbrella companies have been around for 20+ years
Whilst the needs and nature of the contracting market, and umbrella companies themselves, have evolved significantly in recent years, Umbrella Companies have been around for more than 20 years.
Myth 5 – Umbrellas do not provide pensions
Fact 5 – Compliant umbrellas auto-enrol employees into a pension scheme
Contractors who are employed by umbrella companies hold the same pension rights as employees in any other type of employment.
In fact, as per the Pensions Act 2008, all UK employers – including umbrella companies – must offer a pension scheme and auto-enrol employees into it.
Exceed Contracting automatically enrols our contractors into a pension scheme.
Myth 6 – Umbrellas give 90% take home pay
Fact 6 – Compliant umbrella companies pay £millions in PAYE and NI to HMRC
Compliant and real umbrella companies will never offer take home pay rates anywhere near 90% as they will operate PAYE with full tax and NI deductions.
The only difference in take home pay between operators should be down to their fee/margin for processing payroll.
Any umbrella promising increased take home pay is most likely to be an unscrupulous loan scheme that’s best avoided.
Myth 7 – Umbrellas are subject to IR35
Fact 7 – Umbrella employees are outside IR35
This is a highly topical subject due to the massive IR35 turbulence caused by off payroll legislation changes in recent years.
IR35 is designed to deal with disguised employment; whereas with an umbrella company, contractors are employees of the umbrella and therefore outside the scope of IR35.
If you have any queries about Umbrella company payroll that isn’t addressed in this article, contact the compliant Umbrella Payroll specialists at Exceed: 0800 612 8787
