Pros and Cons of working through an Umbrella Company

As a result of the recession, the UK has seen more people turning to self-employment, freelance work and contract work either because they have been made redundant, or they have chosen to work with more flexibility because of family commitments.

The majority of freelance work being taken up is mostly in web design, journalism, copy-writing, illustration and graphic design, and photography. Many umbrella companies and employment agencies have contract staff that quite often fill jobs on a temporary basis where the contractor may have worked previously before being made redundant.

As a freelancer, you will be working either as self-employed, or as an employee through an umbrella service agency or company. Some people choose to do both, and have the flexibility of taking up temporary contracts through an agency to supplement their self-employed earnings.

Working for an umbrella company can generally be viewed as a hassle-free way to work, especially if you are working as a freelancer, or enjoy the freedom of taking up temporary work that you can pick up when you like to fit around your lifestyle.

There are a great many advantages to choosing to work with an umbrella company, reduced paperwork being one of them. Essentially, once you have chosen a provider you become an employee, so you are free to concentrate on the job in hand without having to worry about much of the associated paperwork, such as PAYE and VAT.

Temporary Employment is on the rise

All industries and work sectors are affected by the economic climate, so when economic conditions take a downturn, business owners and managers will turn to temporary-employment agencies to bolster their workforce for the short-term rather than go to the expense of hiring permanent staff. However, the same is also true when the economy is in a state of recovery. Employers will hire temporary staff to take up the slack of the increasing workload before hiring new permanent staff. According to recent government figures, there are approximately 1.7 million people working in temporary employment in the UK at present, which is just over 5% of the total labour force.

For a temporary worker, choosing to work for an umbrella company makes sense. All you need to do is sign up with an agency, perform the temporary job you are given, send in your time sheets and any extra allowable expenses, then wait for the agency to pay you. They will handle everything for you, so you don’t need to spend hours sorting out your tax returns, negotiating contracts, insurance, or rates of pay etc. The extra weight of administrative duties are taken off your shoulders.

The added beauty of working on temporary contracts is that if you don’t particularly like the company you are working for, you have the option of turning down the work, or pushing through to the end knowing that your placement is only temporary, and you do not have any long-term commitment to the company. You may be happy to stick it out knowing that the job will come to an end eventually.

From a business owner or manager’s point of view, hiring temporary staff through an umbrella company can be advantageous too. If the hired worker is not performing as expected, they can request a replacement from the employment agency, or terminate the contract. The umbrella company takes care of all the associated paperwork, so there is less pressure put on the company HR department.

Change is on the horizon

So far, workers employed through umbrella companies have enjoyed certain tax reliefs on allowances, such as home-to-work travel expenses for example. However, George Osborne has announced in his Budget speech that travel and subsistence relief will be more restrictive for umbrella and PSC contractors under certain conditions. The new measures being proposed will take effect from April 2016, and have been created to target employment intermediaries who may be exploiting the current tax system.

The new restrictions on eligibility for travel and subsistence relief will be applied specifically to umbrella workers, contractors and agency workers alike. It will be applied where the worker is seen to be acting as an employee, under the direct supervision and control of their client.

Mr Osborne hopes that this move will separate umbrella workers from those that are genuinely self-employed, who will be protected from the proposed removal of tax relief on travel and subsistence costs.

The cons of working with umbrella companies

The very nature of the work given means that it is only temporary. As a worker, you have no job security with a temporary contract, and your work will always be subject to change. You have to learn to become very adaptable, and get used to frequent changes in your work environment. This can be very unsettling to some people who prefer the stability of a secure job, so many temporary workers eventually go on to look for a permanent position.

Although you may may earn more as a temporary worker per hour, you will not be entitled to the usual benefits that permanent employment brings, such as sick pay, holidays, and maternity or paternity leave and pay.