Umbrella companies

SteProud

Hammyman wrote: »

And where does that 12% of gross holiday pay magically appear from? I know the answer to this but I'll give you the opportunity tell them.

Again I can only speak for what we do.

We advise our contractors that the rate they are charging the end client for their services should have 10.8% added to it to cover holiday pay.

So using round numbers to keep it simple, if the contractors usual rate is £10 per hour, if they are working via an umbrella it should be £11.08 in order to cover holiday pay and we then include this as part of their weekly or monthly pay depending on what basis they have selected to be paid on. We don't hold on to it (some umbrellas do) as its better earning interest in your bank account then it is in ours.

If you do take a holiday, you won't be payed for the time you are off but you will have recieved the holiday pay spread out over the course of the contract. The advantage of working this way when it comes to holiday pay is that the contractor doesn't have to chase up their holiday pay as we don't hold on to it. This is not always the case with other umbrella or agency PAYE schemes.

I think this would be of most use to the OP as it sounds like the contracts they are chasing are short term and they are unlikely to take a holiday whilst completeing them, therefore saving the hassle of chasing up holiday pay from the agent or umbrella when the contract is finished.

Re your point earlier on employment rights. A good umbrella company should offer this as, in the eyes of HMRC and the law, when you opt to work with an umbrella company you legally become one of its employees.

This basically means that anyone using Parasol as their umbrella company has exactly the same employment rights as I do sat here in the office, and access to exactly the same HR support from a CIPD qualified team.

Hammyman - it sounds like you've had a bad experience working with umbrellas in the past? I've got to agree that there are one or two umbrellas who, we would argue, are operating in an unscrupulous manner.

I'd be really interested to hear about your experience?

PasturesNew

SteProud wrote: »

We advise our contractors that the rate they are charging the end client for their services should have 10.8% added to it to cover holiday pay.

So using round numbers to keep it simple, if the contractors usual rate is £10 per hour, if they are working via an umbrella it should be £11.08 in order to cover holiday pay and we then include this as part of their weekly or monthly pay depending on what basis they have selected to be paid on. We don't hold on to it (some umbrellas do) as its better earning interest in your bank account then it is in ours.

A couple of things:

1] What about the employer's NI? As an umbrella you're paying that. So a contractor earning £11.08 will have 10% or so put in a pot for holiday pay, leaving £10/hour, but there's another 10% or so to come off to cover the employer's NI (unless you hide that in your fees, but it's still got to be paid from somewhere), so the contractor actually gets £9/hour on their wage slip as the hourly rate (assuming no umbrella fees and no expenses).

2] Is the holiday pay listed separately on the payslip then, and paid out weekly, as a separately listed payslip item?

SteProud

PasturesNew wrote: »

A couple of things:

1] What about the employer's NI? As an umbrella you're paying that. So a contractor earning £11.08 will have 10% or so put in a pot for holiday pay, leaving £10/hour, but there's another 10% or so to come off to cover the employer's NI (unless you hide that in your fees, but it's still got to be paid from somewhere), so the contractor actually gets £9/hour on their wage slip as the hourly rate (assuming no umbrella fees and no expenses).

2] Is the holiday pay listed separately on the payslip then, and paid out weekly, as a separately listed payslip item?

1) Sorry I should have mentioned that in my last post.

We do the same for Employers NI as we do for holiday pay, advising our contractors to add 12.8% on to their usual rate to cover it.

There is no employers NI paid on the first £110 per week or £476 per month though, depending on whether or not you are paid monthly or weekly.

2) We include a full breakdown on our payslips so both the holiday pay and employers NI are listed as seperate payslip items on the payslips we issue to our contractotrs, as are our fees etc.

PasturesNew

OK. The only thing I would point out is that in most cases contractors aren't setting a rate, then adding on their extras to come up with their rate.... mostly you see the role advertised, at a set rate, then you apply.

I had to drop out of contracting back in 2001 when rates seemed to plummet for what I did from £28/hour (very nice thank you), down to £12 (can't cover the hotel/fuel bill any more).

I just figure that in uncertain times, umbrellas provide the easiest way to dip in/out of contracting as the market changes. A Ltd company is a big commitment...

SteProud

PasturesNew wrote: »

OK. The only thing I would point out is that in most cases contractors aren't setting a rate, then adding on their extras to come up with their rate.... mostly you see the role advertised, at a set rate, then you apply.

I had to drop out of contracting back in 2001 when rates seemed to plummet for what I did from £28/hour (very nice thank you), down to £12 (can't cover the hotel/fuel bill any more).

I just figure that in uncertain times, umbrellas provide the easiest way to dip in/out of contracting as the market changes. A Ltd company is a big commitment...

Completely agree on your point re Ltd company contractors. If you are in it for the long haul as a career, and are happy to take on the responsibility and legal requirments of being a company director, you will most likely be better off setting up your own Ltd. As you say though, umbrellas can be a good way of getting started or dipping in and out of the market.

Hammyman

SteProud wrote: »

Hammyman - it sounds like you've had a bad experience working with umbrellas in the past? I've got to agree that there are one or two umbrellas who, we would argue, are operating in an unscrupulous manner.

I'd be really interested to hear about your experience?

I haven't had a bad experience because I'm not stupid enough to fall into the con but I know many lorry drivers who use NOVA and the like who pay many hundreds of pounds more than they should for a very basic service. My brother also used one for the agency he worked with. I worked out what he'd have been on with PAYE and what his net income was and he was roughly £10 a week better off not using an umbrella company. Had he chosen to set up his own Ltd company, he'd have been a couple of grand better off.

Basically, they're paying through the nose for a service that provides nothing above that what anyone can do themselves.

I notice you're wriggling about employers NI. Is that because it inconveniently shows you have to put aside over 23% of gross income above £110 a week just to cover holiday pay and employers NI, thus not making it look as attractive as it did and is actually MORE than you'd have to pay in PAYE? And as PasturesNew pointed out, you don't say "My rate is £10hr plus £2 to cover holiday pay and employers NI" because the client quite frankly doesn't care. You say the rate is £12 and then find you don't get the work because someone else says £10.

In short, umbrella companies are a con (hell, yours doesn't even do the invoicing!!!) and the only reason they're in existence is because of the perpetuated myth that running a Ltd company is both expensive and complicated which is far from the truth.

SteProud

In short, umbrella companies are a con (hell, yours doesn't even do the invoicing!!!) and the only reason they're in existence is because of the perpetuated myth that running a Ltd company is both expensive and complicated which is far from the truth.[/QUOTE]

We do do the invoicing.

As part of our fee, Parasol provides a complete professional employment service for contractors which includes a full contract of employment, HR support, guaranteed hours of work, invoicing and timesheet management, tax and National Insurance contributions (PAYE and NICs) and statutory HMRC notifications.

We issue invoices on our contractors behalf, collect payments from clients/agencies, calculate tax and NI contributions and pay their net pay direct to their personal bank accounts, without holding on to it. As i said earlier, better earning interest in your bank account then in ours.

We also cover the cost of insurance such as professional indemnity insurance.

Our contractors are also able to claim tax relief on expenses incurred in the course of undertaking their work (travel, subsistence and overnight expenses) which will usually uplift take home pay.

I was very surprised to hear that the umbrella/agency your brother worked with did not uplift their PAYE rate as this is very poor. We would advise that if this is the case for our contractors they are better off working via the agency PAYE.

As I said earlier, completely agree that many contractors would be better off operating as a Ltd company. Many people though do not want the hassle of working this way due to issues such as IR35 (tax legislation and a whole discussion thread all of it own!), the responsibility of becoming a company director, and insurance costs amongst other things.

From you posts its sounds like you are more then happy to take this on, not everyone is.

We've pointed this out to some of our contractors in the past as we have a sister company that offers accountancy services to contractors wanting to operate as a Ltd. The reponse from some is that they are happy as they are and don't want the hassle.

I'm really sorry but I don't understand your point about employers NI in your last post? Could you break it down for me a bit more please and I'll try to respond?

SteProud

And apologies to IKWeb. I think Hammyman and I have hijacked this thread a bit with our discussion!

Hammyman

SteProud wrote: »

And apologies to IKWeb. I think Hammyman and I have hijacked this thread a bit with our discussion!

:D:D:rotfl::rotfl::rotfl::rotfl::D:D:D:D

I think we'll agree to disagree and let everyone else carry on

Mathsguy

Hammyman wrote: »

I haven't had a bad experience because I'm not stupid enough to fall into the con but I know many lorry drivers who use NOVA and the like who pay many hundreds of pounds more than they should for a very basic service. My brother also used one for the agency he worked with. I worked out what he'd have been on with PAYE and what his net income was and he was roughly £10 a week better off not using an umbrella company. Had he chosen to set up his own Ltd company, he'd have been a couple of grand better off.

Basically, they're paying through the nose for a service that provides nothing above that what anyone can do themselves.

In short, umbrella companies are a con (hell, yours doesn't even do the invoicing!!!) and the only reason they're in existence is because of the perpetuated myth that running a Ltd company is both expensive and complicated which is far from the truth.

Wow! I think you seriously have the wrong idea what an umbrella company is there for and what service it provides for it's fee. The rate you get would be the same if you went with an umbrella company or a limited company. Running a limited company and doing company tax returns and all the other ltd guff that comes with it is not simple and most people need to have an accountant if they want to avoid all the extra fuss required. The cost of an accountant is usually comparable to the cost of the fee for the umbrella. The main advantage of using a limited company over an umbrella is the way company earnings are distibuted - i.e. the use of dividends. This is a separate discussion tho!

Yes you should get more per hour from an agency by using an umbrella/ltd than you would with PAYE but it's nothing to do with the umbrella company what that increase might be! If the increase is piddly, then it's the agency that's trying to rip you off.