What does working for an umbrella company mean?

Whether you’ve already heard about umbrella companies or are completely new to the idea, make sure you’re fully informed so that you can make the right decision for you.

First time hearing about an umbrella company?

When you’re a new contractor, or someone who has been contracting for some time but has never had experience of an umbrella company before, it can all seem very confusing. There are so many options, so how do you know which is the right one for you?

We thought it would be useful to provide some information for those new to this way of working, and give you some guidance on what to look out for and how to make the right choice for you. 

The benefits of joining an umbrella company

There are lots of benefits of working with an umbrella company, beyond the great people of course! As an umbrella contractor, your umbrella company becomes your employer, meaning you can enjoy all the advantages of employment, but retain contractor status.

Continuous employment

As a contractor it is normal to jump between contracts, to enjoy ongoing work and meet the needs of the industry you are working in. But this can cause havoc with your credit score, and make it difficult to access things like mortgages or rental properties, which are often dependent on stable employment. Working with an umbrella company provides the benefits of continuous employment.

Holiday pay and pensions

As an employee, you are entitled to holiday pay and contributions to your pension. Working with an umbrella company is a straightforward way to ensure that you get what you are entitled to.

No need to submit a tax return

You will be provided with a tax code and pay basic, higher, or additional rate tax. All your tax and NI contributions are taken care of by your umbrella company though, deducted from your pay at source. This means that there are no unexpected tax bills, and no need to submit a tax return.

Additional benefits

Some umbrella companies offer additional benefits such as private health insurance, gym memberships, and access to employee discount schemes. 

How to choose your umbrella company

Not all umbrellas are created equally. So it’s wise to do your research and make sure that you find the one that suits you. There are several things to consider, but some of the main things to look out for are:


A good umbrella company won’t lock you down with entry or exit fees but do check for minimum terms, notice periods and minimum rates to ensure that the umbrella will meet your needs. Also find out the umbrella margin, this is the fee charged by the umbrella company for its services. Some umbrellas charge a fixed fee per month, others charge a percentage of contractor income. It is worth comparing this with other umbrellas, but don’t just jump for the cheapest option. Instead, check what each umbrella offers you in terms of services and quality, because this can vary considerably. 


While it might be tempting to go for the best rate you can find, it is absolutely crucial to ensure that you check the details of the rates offered. The umbrella industry is currently unregulated, and it can provide a hiding place for tax avoidance schemes. Under these non-compliant schemes, contractors are lured in with the promise of reduced tax charges. The umbrella company does not pay the correct amount of tax to HMRC, then disappears leaving the contractor with an unpaid tax bill and a hefty fine. When working in the UK is it important to select an umbrella company which is registered in the UK. A company registered overseas is just one red flag for a tax avoidance scheme.

Holiday pay policy

As an employee (of the umbrella company) you are entitled to holiday pay. Different umbrellas deliver holiday pay in different ways, it might be included in your weekly pay, or accrued. Ensure that you fully understand the holiday pay policy of your umbrella, so you know what to expect.


As with holiday pay, you are entitled to pension provision. Make sure that you understand what this will look like for you, and ask any questions if you are unsure.


The umbrella industry is currently unregulated, which leaves it open to abuse from unscrupulous individuals looking to take advantage of contractors. A compliant umbrella company will be registered with the Freelancer and Contractor Services Association (FCSA), who set best practices for umbrella companies and other employment organisations. 

ISO 9001 proves the company’s competency across several business processes, and demonstrates a commitment to creating services which benefit the consumer. Professional Passport is an independent body which assesses the competency of accountancy and payroll providers. 

If an umbrella advertises that they have met ISO 9001, and are accredited by FCSA and Professional Passport, they will have been assessed to ensure that they meet compliance regulations as well as the high standards demanded by these bodies.

The right umbrella company for you will depend on many different factors. We at JMK are fully compliant and offer high levels of service to all contractors who choose us. With fees as low as £10, a transparent holiday pay policy (we pay it, every time, no excuses), as well as a host of other benefits including a dedicated customer service team with a fast response time and an employee rewards scheme, we are always looking for ways to better serve you. Do get in touch if you would like to discuss working with us.


Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions. 

We have evolved to provide a range of expert services; such as Funding, becoming a leading provider to the contracting industry.

We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.

With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.

Have a look at the wide range of services our Funding can provide to you and your business, it is far more than just payroll and finance.

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