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Contractors should be careful when choosing an umbrella company

Published on May 20, 2009 |

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Contractors and freelancers are urged to take extra care when choosing an umbrella company to work though, following the closure of several high profile schemes in recent weeks.

Rob Crossland, managing director of Parasol, says that consolidation of the umbrella company market is a phenomenon predicted even before the downturn.

Filetravel went into administration in late April and Safe Solutions was acquired by another umbrella scheme a week earlier.

In January, Crossland predicted that many contractor service providers would find trading difficult and that not all umbrella companies would survive the downturn.

As contracting boomed over recent years, over 100 PAYE umbrella companies set up, providing widely differing levels of service.

Earlier in the year, Crossland said that "over the next 12 months current umbrella trading numbers could drop as low as 20, but this should still leave contractors with plenty of choice to find a reliable provider to suit their needs".

What should contractors look out for?

Echoing many of the points we make in our guide to choosing an umbrella company, Anita Whittle (Parasol's finance and operations director) says that when an umbrella scheme closes, not only will its contractors be left without a valid contract of employment, but also be unsure of if when and when they will be paid.

Whittle says that a good umbrella company should offer a combination of good customer service, reliability and compliance, and prove easy to use - like the My Parasol employee portal. The scheme should obviously be sound financially.

In many of our guides, we also suggest that contractors seek recommendations from seasoned contractors before making their choice, as good customer service is crucial if you are to have a good relationship with your umbrella company.

Whittle also suggests that contractors choose an umbrella company which offers rapid payment. She points out that some umbrella companies only run one payroll a month, which means that "if the umbrella goes into administration the contractors will be at higher risk of not being remunerated, or only receiving a certain percentage of their earnings."

For in-depth tips, make sure you read our 15-point guide to choosing an umbrella company.