If you work through an umbrella company, you can benefit from ‘continuity of employment’ – whereby you continue to be employed by the umbrella even when a particular contract ends.
In this quick guide, we explore this concept in more detail.
What does continuity of employment mean in simple terms?
When you sign up with a new umbrella, you sign an overarching contract with your provider, meaning you become an umbrella employee.
Unlike traditional employment, where your contract ends with a specific project or role, you remain employed by the umbrella company even when your current contract ends.
This stability can have significant advantages, both practically and financially.
Proof of earnings for mortgages and loans
One key benefit of having one employer is that it minimises the gaps between different periods of employment.
It can demonstrate that you have a stable source of income, regardless of how many clients you may have worked for.
This is particularly important when it comes to securing a mortgage or loan.
It reduces the amount of administrative hassle
If you have one umbrella employer, this minimises the time you have to spend on administration.
Instead of dealing with multiple tax codes, P45s, and different employers, a single umbrella company manages everything on your behalf.
This makes contracting more streamlined and gives you more time to focus on your contract work.
What does this mean for employment rights?
When you become an umbrella employee, you have certain employment rights from day one, including:
Statutory Sick Pay (SSP) (if you earn above the minimum threshold).
However, to qualify for the full same rights as permanent workers, you must first work for the same employer for 12 weeks.
After this qualifying period, you are entitled to the same working and employment conditions (equal treatment) as someone hired directly by your end-client as a permanent employee.
These full benefits may not interest many umbrella contractors, but they may be to some. You can only secure the full range of employment benefits if you have continuity of employment, as the 12-week period resets when you change employers.
Tax code stability
All individuals in the UK have a tax code. For most workers, this is 1257L, which means that you’re entitled to the personal allowance – you don’t pay any tax on your first £12,570 of income during the tax year.
If you change employers during a tax year, this may disrupt your tax code. While your P45 is processed, you may be put on a temporary tax code until the PAYE system catches up.
This means you may pay more tax temporarily – although this will be balanced out eventually.
If you have continuity of employment with a single umbrella, this ensures continuity for your tax code.
10 tips for ensuring continuity of employment via an umbrella
Check for an overarching employment contract: Ensure the umbrella company provides a contract that maintains continuity between assignments.
Ask about gaps between contracts: Confirm how gaps between contracts are handled to avoid breaks in continuity.
Choose a reputable umbrella. Look for FCSA accreditation and evidence of robust compliance, such as using SafeRec payroll auditing software. See our umbrella directory for some suggestions.
Verify statutory benefits: Ensure the company provides statutory employment rights from day one, including sick pay and maternity/paternity pay.
Understand holiday pay policies: Opt for a transparent holiday pay policy. Some umbrellas have been known to pocket unclaimed holiday pay.
Check for payslip transparency: Ensure the umbrella company provides clear and itemised payslips, showing all deductions (e.g., tax, National Insurance, pension, fees) and the breakdown of your take-home pay. Once again, payroll auditing software is a game-changer.
Flexibility for multi-agency contracts: Does the umbrella company support working with multiple recruitment agencies or clients without additional administrative hassle?
Compare Fees: Does the umbrella charge transparent fees, with nothing hidden?
Confirm AWR compliance: Check if the umbrella company provides rights under the Agency Workers Regulations (AWR).
Seek Recommendations: Ask for feedback from other contractors or freelancers about their experiences with the umbrella company.
