If you are contracting via an umbrella company, you will be paid either by BACS, CHAPS, or FPS. These are the three best-known payment systems currently operating in the UK (2017). So what do these acronyms mean?
FPS (Faster Payments Service)
In May 2008, the Faster Payments Service was launched, aiming to increase the speed of transfers between major banks in the UK, at no extra cost to the consumer.
If you use personal online banking, you’ll use this service to make payments to people who have accounts with other banks – and will typically complete a payment almost instantly.
Businesses can typically make one-off payments up to £20,000 and £250,000, depending on the bank, so this should easily cover the typical umbrella company’s needs.
Payments can also be made 24 hours a day, 7 days a week.
CHAPS (Clearing House Automated Payment System)
Payments made via this system should be credited to your bank account the same day if instructions are received by a certain cut-off time (often 2pm), but this typically comes with a hefty fee (up to £35 in some cases). Same-day payment is guaranteed by CHAPS, and there is no transaction limit. This service is typically used for time-critical, or high-value transactions.
BACS (Bankers’ Automated Clearing Services)
Until recently, this was the most frequently used payment system, with payments reaching the recipient’s account within 3 working days. This system is widely used for direct debits and credits.
Which payment system does your umbrella company use?
Until the introduction of faster payments, most umbrella companies used the BACS system to process payments to employees – it was the most frequently used business payment system in the UK.
Some umbrella firms provided payment by CHAPS – often for an extra fee, although this was an inclusive service provided by a small number of schemes.
These days – certainly in the years following the introduction of FPS – almost all umbrella companies now offer same day payments, at no extra cost.
This is not always the case, however. You should find out how any prospective umbrella schemes you are thinking of joining process payments – before signing up.
You certainly shouldn’t be paying an extra fee for the privilege of receiving same-day funds from your umbrella company these days.
If for some reason your bank does not accept faster payments, then most umbrella companies will be able to send payment via the older methods – BACS or CHAPS.
Bacs has published a very useful guide to all the payment services (PDF).