Umbrella Company Guidelines

We are all aware that there are umbrella companies out there who make outrageous claims to appeal to contractors to try and get them on their books. To be honest in today’s climate, the offer of higher take home pay is always going to be appealing. However, this also creates a problem for the umbrella companies that offer legitimate, above board propositions, to contractors. The impact on the perception of the industry has been huge.

So why have we published these Umbrella Company Guidelines?
It is time to publicise some of the wrong doings and help guide contractors and agencies to the right companies, the companies that shouldn’t cause issues with debt transfer down the supply chain. We introduced the “Umbrella Company Guidelines” to provide a guide so compliant umbrella companies can work together to satisfy HMRC. We hope the site will give confidence back to the contractors to make their own decision on which umbrella company to use based on service. The way it should be!

The AUCAE Umbrella Company Guidelines

All workers will be employed by the Umbrella Company under an over-arching Contract of Employment. This effectively gives the status of permanent employee to a temporary worker.

The contract must contain a continued mutuality of obligation and a continuity of employment.

There must be a guaranteed minimum number of hours (336 in a 12 month period).

The contract entitles the worker to statutory payments e.g. statutory sick pay. It is the financial responsibility of the umbrella company. No amount should be deducted from the rate in the business to business contract between the umbrella company and agency to cover statutory payments.

Travel and subsistence expenses will only be payable if an over-arching Contract of Employment has been signed by both parties. The worker must intend on having more than one assignment whilst in the employment of the umbrella company. The contractor must not be deemed under Supervision, Direction and/or Control or the right thereof.
No Expenses Allowable
If a worker has only one assignment whilst under the umbrella employment, then T&S expenses will not be allowable.
Expenses Allowable
However, if a contractor is under SDC, then they must reclaim the tax relief via self-assessment at the end of the financial year. If not and under SDC, the following rules will still apply for the purposes of claiming expenses. Once notice of resignation has been given the workplace would be regarded as permanent and therefore travel and subsistence expenses would no longer be allowable. After a period of 24 months at the same location, regardless of whether this is via the same intermediary or not, travel, subsistence and accommodation expenses will no longer be allowable. This also applies when the umbrella company employee becomes aware that the contract will exceed 24 months.

Employer’s National Insurance & the Apprenticeship Levy is payable to the HMRC each month by all UK employers and umbrella companies are no exception. For the Apprenticeship Levy to apply the payroll for the business must exceed £3m. An amount to cover this legal obligation is deducted from the contract rate. This is agreed in the contract between umbrella company and agency, before the worker’s salary is calculated. The umbrella company’s margin is also deducted from the contract rate before the taxable salary is calculated.

The Worker’s salary will be subject to Income Tax (PAYE) and Employee’s National Insurance which are calculated according to the rates issued by HMRC for that financial year. No portion of the worker’s salary will be subject to any tax treatment other than PAYE. The umbrella company agrees that all deductions made for PAYE will be determined by HMRC. The only expenses processed will be those that are allowable under HMRC rules.

Agency Workers Regulations:
All workers who are employed through an umbrella company will fall within the scope of this legislation by virtue of the fact that they are a worker under a contract of employment and are not in business on their own account. Therefore, no umbrella company should sign a document to the contrary as that would enable them or a third party to avoid their responsibilities under the legislation.

To pay at least National Minimum / Living Wage (NWM / NLW). Expenses reimbursed will not form any part of the NWM / NLW calculation.

It is the responsibility of the umbrella company to police all expense claims made by its workers and can confirm that weekly random inspections of expense claims are made and that supporting evidence can be provided. These random expense checks will represent 10% of invoices raised and any improper claims will be disallowed.

Scale rate payments are used to reimburse expenses which will always be of a similar value and are difficult to obtain receipts for e.g. subsistence. They can only be paid when an allowable expense has been incurred. They can also only be paid when that expense is being directly reimbursed by the employer. It must not be processed as part of any kind of salary sacrifice arrangement.

All Umbrella Companies Are Equal aims to provide guidance to help create a level playing field and standardised industry practices. We also aim to support to contractors and agencies who choose to work with an umbrella company.