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Whether you consider yourself a freelancer, temporary worker, or contractor in the IT industry, using an umbrella company is an effective way to minimise your administrative burden when it comes to your pay. This guide answers all the key questions IT contractors have about umbrella companies. We’ll explain how they work, their benefits, and their role in IR35 compliance.
What are Umbrella Companies?
An umbrella company acts as an employer for IT contractors and other traditional freelance professionals. Ultimately it simplifies payroll and compliance whilst providing statutory employment rights and benefits. Increasingly, recruitment agencies prefer using umbrella companies to handle payments for temporary workers. As an IT contractor employed by an umbrella company, your provider will:
- Make all necessary deductions from your pay, including tax and National Insurance (NI).
- Provide continuous employment, even between contracts.
- Offer statutory employment benefits, such as sick pay and holiday pay.
Getting Paid with an Umbrella Company
Clear communication between agencies and umbrella companies is essential. For each assignment you undertake, an agreement (known as an ‘overarching agreement’) is signed. This ensures both parties follow their roles and responsibilities in managing your employment and pay as an IT Contractor.
Dispelling Myths About Payment Delays
A common misconception of contracting through an umbrella company is that you don’t get paid on time. With a compliant provider, this should not be an issue. Once your agency or end client pay your umbrella provider, they should pay out within 24 hours. With Danbro Umbrella, our policy is that we pay the same day your money is received by our payroll team.
Image: How the umbrella employment model works: contractor pay through PAYE.
How do Umbrella Companies differ from Limited Companies?
When working through an umbrella company, you are classed as an employee rather than a business owner. This removes the need to manage your own tax returns or run company accounts. An IT contractor, like you, would simply submit your weekly/monthly timesheets, and the umbrella company will take care of making the correct calculations and deductions to your pay. This makes it a hassle-free option for those on short-term contracts or frequently switching from project to project.
We have an in-depth guide, weighing up the pros, cons and differences between operating through an Umbrella Company or a Limited Company.
What are the Benefits of being Employed by an Umbrella Company?
Just like being a full-time employee, your umbrella company should provide you with a host of employment-related benefits. These include:
Full Employment Right & Statutory Benefits
IT contractors employed by an umbrella company receive the same rights as if they were permanent employees, including:
- Statutory Sick Pay (SSP)
- Statutory Maternity Pay (SMP) & Statutory Paternity Pay (SPP)
- Holiday pay
Maintaining continuous employment during your IT contracting career can improve your chances of qualifying for statutory benefits like Statutory Maternity Pay and Statutory Paternity Pay. Individual assignments alone may not meet the minimum time requirements, but continuity helps ensure eligibility. For more details on eligibility and what to expect, check out our guide on Maternity Pay and Paternity Pay. Additionally, your umbrella company may offer extra perks, such as private health care and rewards schemes.
Private Pension
With an umbrella company, you are also provided with a private workplace pension. With Danbro Umbrella, you will automatically be enrolled onto the Danbro Group SIPP Pension.
Insurance
Your umbrella company must provide you with the necessary insurances for you to complete your work. With Danbro Umbrella, you will receive Public Liability Insurance, Employer’s Liability Insurance and Professional Indemnity Insurance.
Exclusive Benefits with Danbro Umbrella
At Danbro, we provide a range of benefits and are amongst the leading umbrella companies in the UK for prioritising contractor well-being. Take a look at some of our enhanced benefits, included as part of our standard margin below…
BUPA Private Health & Dental Care
Whatever profession you’re in, your health is crucial to performing your duties safely. For IT contractors, who often work under tight deadlines and high-pressure conditions, access to premium health care services can provide peace of mind and ensure you stay in good shape to meet project demands.
All eligible Danbro Umbrella employees get access to the Bupa Cash Plan included within their margins.
Many contractors appreciate cashback for eye tests and new glasses, while others find cashback on dental care a welcome financial relief. Hospital stays and initial consultations are especially valuable during critical moments when care is a priority. The Bupa cash plan benefit is designed to ensure your health expenses are covered, allowing you to focus on your IT contracting career.
Easy Online Portal
In the demanding industry of IT, we understand the standards you expect when it comes to your digital user experience. Simplifying the burden of submitting timesheets, for instance, is a priority. Danbro Umbrella’s online portal makes submitting your timesheets easy. Once your agency or end client pay us, we’ll handle the rest. All you need to do is wait for your payment to land in your bank. The online portal is also an easy way to submit receipts to claim back on expenses.
Danbro Rewards
With Danbro Rewards, you can enjoy hundreds of discounts on groceries, retail stores, travel, holiday bookings, dining out, and more. Plus, the discounts are easy to access through the Danbro Rewards App, available for download on the Apple App Store and Google Play Store. Find out more on the Danbro Rewards page below.
What is IR35 & how does it affect IT Contractors?
IR35 was put in place to combat tax avoidance schemes and ‘disguised employment’. ‘Disguised employment’ refers to a working arrangement designed to appear as self-employment, while the individual’s actual working practices and relationship with the client are more like those of a traditional employee. As an IT contractor, IR35 would assess whether you’re genuinely self-employed, or if you are working in a way that makes you an employee of the end-client.
If IR35 applies to you, then you will be considered ‘inside IR35’. Some aspects which could mean that IR35 applies to you includes the client having significant control over:
- your work location
- working hours
- how tasks should be performed
- day-to-day management.
Essentially, you’re more likely to be contracting ‘inside IR35’ if your employer’s level of control resembles a typical employer-employee relationship.
If you fall within IR35, working through an umbrella company can be advantageous since IR35 compliance would no longer be an issue (remember, you’re treated as an employee). All your income is processed through PAYE, ensuring full compliance with IR35 regulations. So, for IT contractors looking to avoid the uncertainty and administrative hassle of determining their IR35 status, an umbrella company offers an ideal solution.
In Summary...
As an IT contractor, using an umbrella company makes things simple, ensures compliance and accordance with regulations, and offers the security, benefits and peace of mind of traditional employment. This arrangement is particularly advantageous for those on short-term contracts or frequently switching projects. And, at Danbro Umbrella, you’ll receive additional comprehensive benefits and support tailored to your contractor well-being.
