What is an Umbrella company
An Umbrella company employs contractors and freelance workers who complete a number of different
assignments at various locations. Despite engaging with numerous recruitment agencies and/or
end clients, a continuous employment is maintained as are statutory employment rights.
HOW DOES IT WORK?
When out on assignment with Clipper Contracting Group, the temporary worker will typically be
offered a higher rate of pay (sometimes called the contract sum or umbrella rate) than if they were employed
directly by the recruitment agency. As the employer, Clipper Contracting must cover employment costs
such as employer’s national insurance, holiday pay, pension contributions and the apprenticeship
levy. These employment costs are deducted from the contract sum received from the agency. We
also retain a small margin to cover the cost of the service and what is left is the worker’s taxable (or
gross) pay.
KEY BENEFITS TO THE RECRUITMENT AGENCY OR END CLIENT
The role of Umbrella companies is often misunderstood. There are many benefits for the recruitment
agency or end-client. Clipper Contracting manages all the statutory employment, commercial
and taxation risks associated with using temporary workers and minimises the overheads and
employment risk of employing temporary workers directly in-house.
KEY BENEFITS OF BEING AN EMPLOYEE OF CLIPPER CONTRACTING FOR THE WORKER
- Statutory employment rights:- sick pay, maternity/paternity pay, pension and holiday pay all
provided by Clipper Contracting Group
- Continuous employment:- despite working on multiple assignments, the worker has continuous
employment history, important for mortgages or finance agreements
- Peace of mind:- consolidate earnings with one employer ensuring correct tax is paid despite
performing many different assignments
- Expenses:- subject to supervision, direction and control (SDC) status, ability to claim travel and
subsistence expenses.
See 'Benefits of Clipper Contracting'
DISPELLING THE MYTHS ABOUT UMBRELLA COMPANIES
Myth 1 – Employer’s National Insurance
Many are concerned about the employer’s National Insurance deduction, wrongly believing it is being
deducted from the worker’s pay – a common misconception. This deduction is a company cost paid
by the employer and should be factored into the contract sum (assignment rate) by the recruitment
agency, i.e. it is in addition to the worker’s pay.
As we are transparent in how we calculate the gross pay, we show the various company costs that
are deducted (including the employer’s National Insurance) in the reconciliation statement that
accompanies the payslip. If the worker was paid via the recruitment agency or end-client payroll, the
employer’s National Insurance and other company costs will still have to be paid; they need to be
factored in somewhere in the supply chain.
We provide a detailed explanation and pay illustration upon registration and supporting
documentation by email, to thoroughly explain the various deductions and the net pay a worker
should expect.
Myth 2 – Umbrella companies are a ‘dodge’
Umbrella companies often get a bad name but just like any sector, the few that don’t operate
transparently tarnish the rest. Umbrella companies provide legitimate, continuous employment to
workers who are on numerous different assignments.
Clipper Contracting are transparent in their dealings offering a clear employment contract, full
statutory rights and clear illustrations on how pay is calculated.
In addition, the Agency Workers Regulations (AWR) ensure that all Umbrella employees receive at
least the same pay and rights as their full time, comparative equivalents. The contract sum received
by Clipper Contracting would therefore more than likely be greater than the rate received by these
equivalents.
Myth 3 – my net pay was higher with the other Umbrella company
Some companies term themselves as ‘Umbrella companies’ and whilst they pay temporary workers,
the model they use is often different. If an Umbrella company is operating compliantly, there should
be little difference in the net pay of the worker.
Some other companies claiming to be ‘Umbrella companies’ often don’t employ their workers on
over-arching employment contracts and those workers won’t have the same employment rights. In
addition, there is no guarantee the correct tax and NI is being paid.
**Myth 4 **– there are no benefits working for an Umbrella company any longer
This is fundamentally incorrect. Not only do Clipper Contracting provide continuous employment and
full statutory employment rights, some workers may also be able to submit travel and subsistence
expenses.
Updated on: 27/02/2024
Thank you!