Why Is Umbrella Payroll Companies Controversial?

Whether you are an agency or an end client you know that paying contractors can be a confusing and complicated operation. Obviously you want to be sure that contractors are paid the correct amount at the correct time – quite apart from it being the professional thing to so, failing to pay on time could cause financial inconvenience which could sour relations and damage your reputation as an employer. It seems like such a simple task on paper – simply multiplying “number of hours worked” by “hourly rate”, checking the arithmetic to be doubly sure and then handing over the money cannot be that hard surely?

The problem is that you contractor is not the only person that must be paid. They are required to pay tax and National Insurance contributions based on the income they get from you and calculating what that is falls to you, even though you do not employ them directly. So something that appeared to be an arithmetic challenge within the grasp of most primary school children becomes tangled up in a mass of variable codes and tax allowances.

That is where umbrella payroll companies come in. An umbrella payroll company is effectively a “payroll intermediary” acting as a de-facto employer to contractors. As the end client you pay a flat fee to the umbrella company, they then ensure that monies owed to the contractor have the relevant tax and other contributions deducted and paid to the appropriate departments.

This is also a simple and effective way to take care of your IR35 responsibilities too. Outsourcing your contractors’ payroll to an Outside IR35 Umbrella Company can shelter your business from the complexities of IR35 requirements because they make the umbrella company the contractor’s employer. Your business pays the umbrella company, they take care of everything else.

There are not all that many circumstances in the world of taxation and payroll where everybody involved wins. We think that umbrella payroll services is one of them.

So why are they controversial? Well, it is a sad fact that some disreputable companies have brought a certain amount of disrepute to the field by making unwarranted deductions from contractors. This has, quite rightly attracted some negative attention and made some workers organisations suspicious of the whole concept.

We would point out that there are companies who act in bad faith in every industry. An accountant who embezzling from their clients does not indicate that all accountants would behave in this way – the same goes for umbrella payroll companies.

We believe that the best way to demonstrate that we are a good, trustworthy company is to behave in a an open, transparent and trustworthy way. We make sure that both the end client and the contractor can see where all of the money is going and why it is going there. In this way everyone is fully informed and if there are any queries they can easily be ironed out.

So talk to us and the ways that we can help to streamline your payroll operation – come and shelter under our umbrella.