Susan's Legal Bits

Each month Susan Hickman the HR Manager here at Gabem will be doing her best to fill us in on the latest legal issues relevant to temporary workers.

Susan would also like to hear from you so, if you have an issue you would like her to comment on in her "Legal Bits," please get in touch here, she'd love to hear from you.

Susan's Legal bits updates at the beginning of each month.

This month Susan is interested in the question...

...Am I self-employed if I am working through an umbrella company?

Hello Everybody,

February is here already and the weather seems to have cleared down here in West Sussex. Easter Eggs are in the shops which always brings a smile to a few chocoholics I know, and spring is just poking it's head around the corner from the views I get on the drive to the office every morning. So all is well with me - but what about yourselves? Drop me a line if you get a chance - It's always nice to hear from you.

So...this time I would like to address a fairly common question which is 'am I self-employed if I am working through an umbrella company?' or sometimes even 'what's the difference between being self-employed and being umbrella?'

Firstly you are NOT self-employed if you work through an umbrella. You are an employee and have full paye tax and nic deducted from your gross earnings. What does sometimes confuse the issue is that, when you work for an umbrella company, you are tasked with finding your own work and will not be paid if you don't work* and it is this element of the situation that makes it sometimes feel as if you are self-employed.

Of course, being an umbrella company employee, you have employment rights. All umbrella companies should look after you in terms of holiday, sickness, health and safety to the extent that we can and grievances/disciplinaries. They should also govern contractual agreements with the client you have approached and negotiated with, and will arrange payment details with those clients in order to invoice for your services on a regular basis. Once the monies are received by your umbrella for the services you carried out to that client on their behalf they can then start to look after your employment wages, any profit available, HMRC obligations (tax and NIC) and of course reimburse legitimate business expenses out of your profit when you have submitted them.

If you are self-employed no-one does your tax and nic for you. No-one pays you holiday or sick pay. You do not get your expenses reimbursed by anyone (unless your client is that way inclined) and you have to wait until you submit your tax return to gain any tax relief on expenses incurred. You would receive a gross amount every week and would have to set aside monies to settle your tax bill at the end of each tax year, you would also be paying your NIC by direct debit after having registered as self-employed by HMRC. If you were to use our Solo or CIS products we would still be happy to invoice on your behalf and pass your monies to you once received via a self-billing agreement but we would not be responsible for anything else with regards to your pay.

When comparing self-employed with being an umbrella employee the similarities are that you find your own work and are essentially contracting yourself to clients on short-term contracts therefore the work can be sporadic. The differences are that the umbrella method gives you security with regards to tax and nic being correct ongoing, allows you to claim legitimate expenses as you work through the year, keeps you as an employee even though you may not be working for a short time and you have a company that can give you references of employment for mortgage purposes, new employers et al.

I hope this is helpful to some of you.

Essentially, you can work as a temp and appreciate the freedom that it gives you but use an umbrella company so that you have that continuity while you go from job to job, agency to agency. With an umbrella company you wouldn't have to get your P45 from your client or agency each time you moved on - just take it with you wherever you go.

If you satisfy the self-employed requirements you may wish to work as self-employed. This way you are on your own....but can of course make use of companies like us that will do your invoicing for you.

Have fun in this frisky month of February.

All comments provided on my blog are for informational purposes only. My thoughts and opinions are my own with agreement from my employer as being suitable for sharing with the wider world. Any advice, or writing that might be taken as advice, should not be deemed in any way as professional Legal advice and are only the musings of a HR practioner whose sole aim is to help where she can.