Top Alternatives to Umbrella Companies in 2024

Categorised in: IR35, Umbrella Company Alternatives,

This article was first published on 23^rd May 2019 and has since been updated for 2024.

Here we look at the top alternatives to umbrella companies, including our outsourced payroll services.

What is an Umbrella Company?

An umbrella company acts as the employer of the contractor/temporary worker. This, in turn, allows the umbrella company to calculate all tax, National Insurance, and business expenses per contract. As a contractor, upon securing a new contract you will send it on to your umbrella company and not sign the contract yourself. You will then receive a contract between you and your umbrella company, not your client.

Advantages

As a contractor, an umbrella company might appear hassle-free. They will take care of all of your administration tasks, including chasing payments and processing payroll. Working through an umbrella company can benefit those who are looking to explore contract working due to the low risk involved. If you decide to pursue a career in contracting, then you can easily set up a limited company at any point.

Disadvantages

Umbrella companies will advertise that they are a low maintenance method of contracting. Although this may be true, they also come with disadvantages and may not suit everyone.

For instance, it usually isn’t the best way to maximise income if you’re a contractor. This is because umbrella companies deduct a service charge from your final payment. Service charges will vary depending on which umbrella company you use; it is crucial that you find this information before signing any binding contracts.

Umbrella Alternatives

Limited Company

A popular alternative to using an umbrella company is to set up your own limited company. Many contractors believe this method comes with a lot of work, but there are many advantages to setting up your own limited company.

Contractors using a limited company will avoid service charges associated with alternative methods, thus increasing their take-home pay. As a director of a limited company, you will be able to claim a wider range of legitimate expenses. These include travel, equipment, phone, and accountancy fees, which means you can end up paying less tax as well.

Sole Trader

As a sole trader, you will own your business as an individual and be categorised as self-employed. Many self-employed workers will start up as a sole trader due to its ease, the small amount of administration, and lower set up costs.

But for sole traders, there is little distinction between your personal assets and business assets. Therefore, your personal assets are not protected, which can be stressful if the business was to get into debt. For instance, a sole trader could lose their home, or any personal savings or other possessions of value outside of the business.

Agency PAYE

Working with a recruitment agency can seem comparable to working with an umbrella company. Both options result in the contractor/temporary worker becoming the employee, allowing the agency to calculate the taxes, National Insurance, and business expenses.

As with an umbrella company, agencies will take care of all employment administrative tasks, thus allowing you to concentrate on your work. As a contractor/temporary worker, you will want to maximise your take-home pay. Some umbrella companies offer contractors the opportunity to claim expenses as a way of tax avoidance. However, agency PAYE will not offer this due to the risks associated.

HIVE360 – A Popular Umbrella Company Alternative

HIVE360 uses a simple and fully compliant model of PAYE payroll support and employment admin management for recruitment agencies. Our mission has always been to offer a vital expert outsourced support solution for the recruitment industry that meets the needs of both the agency and the temporary worker, without compromising on compliance. This fully optimised payroll service goes much further than established and traditional models.

Our alternative payrolling method is fully compliant, transparent, and reliable. It also adds value to your business and your candidates’ experience. When you partner with HIVE360 for your PAYE payroll support, you are unlocking unlimited access to a huge array of benefits for your business. This includes extensive well-being support and money-saving discounts for workers and their families.

Furthermore, we’re also focused on creating cost savings, operational efficiencies, and positive impacts to profitably. Our solutions take away the burden of your employment administration, including payroll, auto-enrolment pension, pay documentation and vital staff communications. We provide GDPR compliant, securely encrypted digital payslips as well as telephone hotline support for any employee queries. This all gets made even easier with our mobile Engage App, which puts all of these services in the palm of your hand!

Alternatives to Umbrella Companies – Final Thoughts

Overall, we say it isn’t worth running the risk of non-compliance, poor candidate reputation or losing your best talent that are real risks when adopting many umbrella and mini umbrella schemes to deliver your ageny payroll. Get in touch with us today so we can guide you through our simple yet revolutionary approach to optimising payroll services.

You can also learn more about HMRC’s landmark Mini Umbrella Company ruling from April 2024 in our article here.