Umbrella companies for contractors

[Dr Jekyll]

Eric Mc said:

There is no law saying that all employees have to be full time.

There is now law saying that temporary staff/employees cannot be hired through normal employment agencies.

What is the superiority of an umbrella company over a traditional employment agancy?

Why is an umbrella company looked on as an alternative to an individual setting up their own limited company? Surely an umbrella compaby is really an altrernative to

a) full time employment

b) part time employment

c) temporary employment

d) employment through an agency

It isn't a replacement for a form of "self employment" - or is it?

And finally, if the individual is being treated as an employee by the umbrella company, surely the employment obligations pass to the umbrella company anyway - or has the umbrella company some dispensation from treating its employees according to employment law?

Edited by Eric Mc on Saturday 30th April 09:30

An umbrella company is not an employment agency, I got my current contract through an employement agency, and then had a choice of an umbrella company or my own company. The client, for whatever reason, does not want to take IT developers on as PAYE so the presumed advantages of permanent employment with them are irrelevant.


Ideally I would be self employed but that would cause the client complications which they don't want. Therefore my remaining alternatives are setting up my own company or using an umbrella. The ONLY alternatives to using an umbrella would be setting up my own company or sitting at home with no income.

[Eric Mc]

My problem is the ease with which people seem to think that "self employment" status and "umbrella" set ups are a sort of flip-side to the same coin. It is a real blurring of the definition and is not helpful for those who are REALLY running their own businesses and may be under IR35 attack.

The whole area is a complete mess and needs serious sorting out.

[parakitaMol.]

MickC said:

While IT contracting as a career choice does sometimes make sense, I'd say usually it's at the high end £40+ an hour (or equivilent day rates) where you can make your own choices around clients, pensions, training etc.

For a lad just out of apprenticeship its just for convinience of the (non)employer. 6 weeks also doesnt sound like much of a contract, I hope the rates reflect such a short term contract. Thats especially true is IBM are about to come in and there isn't much chance of contract renewal. Is there the chance IBM will take him on when they transition service, or is it definatly just a stopgap role?

OP - for such a short term and presumably low rate contract Parasol will be fine. Its quick and easy, they will try to cover their fees by paying expenses which are tax free. The other options are much more expensive and also much more long term - if your lad is just wanting the 6 weeks work and especially if he would prefer a permie role later, then there is no point whatsoever going for ltd companies or anything like that. In fact, if he is on a low rate he probably could not afford any other route.

Parasol will deduct paye and NI (both employers and employees) from his rate before they pay him. They will also deduct and keep 'banked' some pay to cover a small number of stat holidays, which he can take when he likes once they have 'banked' enough to pay him (usually bank holidays). If he is not working away from home then the expenses will be minimal, but every little helps. No sickpay except government statutory. Parasol should be able to give him an estimate of how much he will get in his pocket net per week given hourly rate and his expense circumstances.

Good luck.

Mick that is really helpful. Thank you for that. He's just starting out and has been looking for his first role whilst working in Starbucks. To him, it's more beneficial to be gaining some experience in his field than selling coffee! even though the term is short he will gain some experience and a reference which makes it worthwhile. It is also a high profile company to have on his CV.

It was his recruitment company who suggested he payroll through Parasol not the employer but on balance he's probably decided that he may as well just stick with the recruitment company for this one. His travel expenses will be negligable as it's very close to home. Unfortunately the pay is not high at all, but with no experience he has little to negotiate with.

Thanks so much for the replies, the whole business is as clear as mud to me!