The truth about umbrellas

Julia Kermode

Julia Kermode dispels some myths around the role of umbrella companies.

As recruiters you all turn to umbrella employers when it comes to the contractors and temporary workers you place, but they’ve certainly come under some fire recently, and we’ve all read and heard some bad press portraying them all as the ‘baddies’ who just want to take their cut and deprive the contractor of hard-earned money.

They just process the payroll and expenses, right? wrong! They do a whole lot more than that and the relationship between a recruiter and umbrella is one that is key to supporting and sustaining a strong flexible workforce that is vitally important to the growth and success of UK plc.

Let’s start with the recruiter perspective. A fully compliant umbrella employer manages the commercial, employment, taxation and statutory risks associated with the use of temporary workers for the supply chain. This minimises your overheads, your employment risk and your administrative burden of managing temporary workers, freeing you up to get on with what you do best.

And there are also many advantages to the contractors themselves. Umbrella employers provide contractors with full employment rights, all statutory benefits including holiday pay, maternity pay, paternity pay, sickness pay, pensions, redundancy pay and adoption pay. A contractor is an employee of its chosen umbrella employer and with that relationship comes a responsibility for the umbrella firm to provide professional advice and an HR service to its contractors – a responsible umbrella company cares for its employees, the contractors.

As a contractor’s employer the umbrella firm keeps a record of the contractor’s full employment history which serves to help someone who works on multiple contracts to access personal finance solutions such as mortgages and loans. It has been more than a year since the mortgage market review (MMR) came into force and lenders tightened their purse strings. Now you have to share details of your bank statements, credit card bills and life plans and prove that you can easily afford the mortgage repayments – umbrellas can help provide a complete employment picture to support any mortgage application to make the process much smoother for contractors.

And, when it comes to pay, umbrellas provide a joined-up service as a contractor’s employer. Individuals who work at multiple locations over short periods of time can rely on the umbrella company to join up the process so that they receive one pay cheque on a regular basis. For teachers and pharmacists, for example, who work on short notice, often emergency contracts, this is an important service and one upon which these professionals rely so that they can simply get on with their jobs they are trained to do with no risks attached.

Contracting could be a risky business without the help and advice of umbrella employers – commercial risks, employment risks and statutory risks could certainly put off a contractor working for him or herself. And let’s not forget health and safety! Umbrellas are responsible for the health and safety of their employees when working at or travelling to/from an end client’s premises, giving extra protection and peace of mind.

By working for an umbrella, a contractor is protected from the risks. So, if an umbrella employee makes a mistake the umbrella employer is insured to cover that mistake whether that is at work or when it comes to taxation – for example, the umbrella would step in to support a contractor through any HR tribunal case and also ensure that a contractor’s tax and national insurance is paid at the correct rates – the umbrella is liable for any errors which must be hugely reassuring to any contractor.

It is clear that umbrellas are much more than just a payroll service – the relationship should be seen as a partnership. One could argue that a symbiotic relationship between recruiters and umbrellas is obligate – they both rely on each other – and by working together to foster that relationship so that both parties clearly understand the role each party plays, contractors and end hirers will benefit greatly.

Only then might we start to see alternative testimonials to one recently seen on an umbrella’s website from a recruiter – it said: “Many thanks for all your help. I have found you the BEST payroll guys ever!”

Julia Kermode is CEO of The Freelancer & Contractor Services Association (FCSA).