How Does a PAYE Umbrella Company Operate?

We aim to provide an insight into how a PAYE umbrella company operates. What contractors should expect once they agree to join a new scheme.

How Does a PAYE Umbrella Company Operate?

After you have selected the Umbrella company that you want to use based on your requirements, which is the most important part of the process, you will need to take some steps as you become an umbrella company employee.

Joining

Once you have joined, you will then be considered an employee of your chosen umbrella company. Therefore, you will be required to provide both your P45 and P46 and other details, including personal information, National Insurance Number, and your bank account details.

Managing Contracts

As soon as you have taken on a contract role, your chosen PAYE umbrella firm will put a contract in place with the recruitment agency. You will also be expected to sign a contract of employment with the umbrella company you have joined.

Invoicing and Timesheets

Whether it’s on a weekly or monthly basis, you will be required to provide all of your timesheets to your client as well as your umbrella company. The umbrella company will then handle the process of invoicing your agency for you. This will include the hours that you have covered during the previous period. The agency will then make a payment to the umbrella company for the amount that they have invoiced. It’s worth speaking with your umbrella company to find out how regularly they make payments. Some will do it on the day that they have received the payments. While others will only make the payment once a month.

Payments

You will agree on a payment date during your cycle, and that is when your umbrella company will pay you. You will receive your payslip, and that will show you your take-home pay. This means that all income tax, employees’ National Insurance contributions, umbrella fees, and all other deductions will be handled. Additional costs that will be deducted include employment costs: Employers’ NICs and the Apprenticeship Levy.

Handling Expenses

While you are with your umbrella company, you will have the ability to submit claims for expenses against the items that you have pre-agreed. For those expenses that have been wholly incurred during the conduct of your contract work, then you will be able to claim tax relief.

Before Signing Up

There are many PAYE umbrella companies out there. You should do as much research as possible before selecting one. There are many differences between the companies, but the main one relates to the fees they charge and the overall experience from a customer service perspective.

It’s also worth remembering that many umbrella providers are not honest or trustworthy. These might boast an exceptional take-home pay percentage, but you should avoid these schemes. While the fee could differ, in general, there is unlikely to be much of a difference between how take-home pay is calculated from one PAYE umbrella company to the next.