Susan's Legal Bits

In December 2009 Susan was interested in.....

....Umbrella Company Employers NI

Hello all,

As the economy has put us all into an increased awareness state of where every last penny is going I am receiving more and more questions with regards to why freelance professionals such as yourselves have to pay employers nic when you choose to use an umbrella product for method of payment.

On first glance it is easy to immediately see this as a negative to choosing Umbrella for your pay but, in truth, you will always have paid employers NIC, just in a less than direct way.

It is perhaps easier if I refer to myself to give an example. Being permanently employed by Gabem they pay me a salary based upon my skills, qualifications, market rate and on what they can afford to pay. The final element is of course based upon how much profit the company makes after they have had to pay out for all the costs they incur by actually employing me. In my case my employer has to pay for the lighting and heating in the office in which I work, generously they provide me with hot water, electricity, equipment, they reserve some money so that they can afford to pay me when I am on holiday, they insure me and my work and occasionally I am allowed to make myself a mug of coffee too (!), but another large bill they have to find the money for - before they can pay my actual salary - is the employers nic. Whatever is left over after all the bills are paid they can then start to distribute to me in form of a salary or perhaps a nice bonus.

Well, in the case of umbrella it is no different. Temporary workers choosing to use the umbrella product will go out to work bringing in a revenue stream to the company. That company then has to face paying all it's bills - including employer's nic - and then the remaining money is paid out in salary and hopefully a profit related element of pay.

When freelancers are shopping around for payroll methods it is important to not only understand how an umbrella method works but also where any deductions are going and why. That is why we at Gabem spend time talking to new clients about their personal circumstances - the type of work they do, a calculation is given to them and we advise on the expenses they can claim for according to HMRC guidelines. If, because of the costs of choosing the umbrella method, it would leave that prospective new joiner out of pocket we let them know. This can sometimes happen when a freelancer doesn't have many expenses they incur in their day to day duties or perhaps the rate they have negotiated with their agency or client is too low. We will always discuss this and give the best advice we can.

Of course, many of our competitors are not inclined to talk about this (usually hidden) deduction of Employers NIC but I believe that if a company (like us here at Gabem) are confident and proud of the product we offer then the less attractive elements should never be glossed over because the benefits of our product will nearly always outweigh them.

I feel as if I have ended the year of legal bits on a heavy subject but I hope you forgive me. I'm off to get excited about spending some time curled up by the fire during the festive period and look forward to sharing whatever I'm interested in at the beginning of January!!

Stay safe and see you in the New Year!

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.