One of the benefits of contracting is that you decide when and where you work, and for many contractors that means working for more than one client, and often through more than one recruitment agency. This can mean you end up being employed by more than one umbrella company, which often isn’t ideal. In this article we’ll look at why this happens, why it’s usually not to your advantage, and what you can do about it.
Why you might have more than one umbrella company employer
The supply chain for each of your assignments will be something like this:
So, the recruitment agency has a contractual relationship with your umbrella company, rather than with you, and responsible recruitment agencies will want to vet any umbrella company they work with, to ensure compliance with employment and tax law, and also to ensure reasonable levels of service and expertise.
Many use a preferred supplier list (PSL) of pre-vetted umbrella companies, which speeds up their onboarding process because they don’t have to vet umbrella companies “on the fly”. Only working with a few carefully chosen umbrella companies also helps them streamline processes and reduce errors, ensuring a better experience for their contractors and clients.
Compliance is extremely important, for your protection as well as the agency’s, and in general the use of umbrella PSLs makes sense, but it does sometimes mean a recruitment agency might ask you to switch from your current umbrella company to a member of their PSL.
It’s not uncommon for contractors to have more than one assignment running at once, and if your assignments are arranged by different recruitment agencies you might find yourself with more than one umbrella employer at once.
Why it’s better to have just one umbrella company employer
Having more than one employer can make your finances difficult to manage, with payments coming from more than one source and with different policies, procedures and deadlines for timesheets and expenses claims. The life of a contractor can be hectic enough to make this extra level of complication into a serious issue.
Being employed by just one umbrella employer gives you one company to build a relationship with, one procedure to navigate for timesheet submission, holiday pay, sick pay, statutory payments and your workplace pension.
Your pay will also come from just one source, you’ll have one set of payslips, one P60 at the end of the tax year, and importantly, one tax code.
Effect on your tax code
Your tax code tells your employer how much personal allowance to include when calculating your tax. The standard tax code for most employees in the UK is 1257L, which gives you a personal allowance of £12,570.
When you have more than one employer, usual practice is for one employer to use your full tax code, and for the other to use BR. This stands for Basic Rate, and it means you’ll be taxed at 20% on all your pay, without the benefit of any personal allowance.
Depending on your income, this can mean you overpay, for example if your first employer doesn’t pay you enough to take you over your personal allowance, or you might underpay, for example if you earn over the higher rate (40%) threshold this won’t be taken into account on your BR tax code.
Again, claiming a refund or paying the additional tax due to HMRC is a complication that most contractors can do without.
What you can do if your agency won’t work with your current umbrella company
The first thing to realise here is that the recruitment agency is within their rights to refuse to work with your chosen umbrella company, and they may do so for a number of reasons. The Criminal Finance Act makes recruiters responsible for ensuring compliance in their supply chain, and as a result they need to protect themselves from prosecution resulting from non-compliance by their suppliers. It’s vitally important for recruiters to know who they’re working with, and due diligence is imperative.
That said, most recruiters will want to allow you to use your choice of umbrella if possible so it’s worth talking to them about why they want you to switch.
If you know your umbrella is compliant and you’re happy with the service and benefits you receive, it might be worth putting them in touch with the recruiter to see if the issue can be resolved.
If you have questions or if we can help in any way, please call our expert team on 01296 46843 or email info@orangegenie.com.