How Do Umbrella Companies Make Money?

[The SMG]

A newbie contractor at clientco signed up with an Umbrella Company last Friday. Not so much in the way of interesting news you may think. But here's the carrot, he's paying just a flat £10 per week admin fee and this includes free CHAPS payments!!!

With the base rate at just 0.5% there's clearly not much to be had in the way of bank interest nowadays. I know Umbrellas are able to claim back VAT on contractor expenses but even with an extra couple of quid thrown into the mix; this particular Umbrella surely can't be making any money at all once you take overheads and staff salaries into consideration.

Anyone else know how they balance the books?

G

[dodgy_Dave]

Originally Posted by The SMG

A newbie contractor at clientco signed up with an Umbrella Company last Friday. Not so much in the way of interesting news you may think. But here's the carrot, he's paying just a flat £10 per week admin fee and this includes free CHAPS payments!!!

With the base rate at just 0.5% there's clearly not much to be had in the way of bank interest nowadays. I know Umbrellas are able to claim back VAT on contractor expenses but even with an extra couple of quid thrown into the mix; this particular Umbrella surely can't be making any money at all once you take overheads and staff salaries into consideration.

Anyone else know how they balance the books?

G

It's often one that has bothered me. I've worked at agencies in the past where Umbrellas have paid 'kick back' commission (£ c75 per contractor) for referrals. If you take this into consideration it further reduces their margin per contractor, per week.

[curleyted]

Surely they negotiate a hefty discount with the bank on the CHAPS fee?

Everything else is then just worked on volume with minimal staff. Simple formula:

a = price - costs
b = customers joining
c = customers leaving

if

a x (b-c)

is a positive number, they're happy. The punters might not be (due to ****e service), but they are.

Pay your money take your choice.

[Rob Crossland]

Maybe I can shed some light....

At £10 per week it is very difficult to do it all fully and properly (imo). Take insurances as one example - how good is the PI/PL/EL cover at that level? Will the £10 Umbrella truly give the Contractor employment rights when he/she needs them? In my experience there is not enough margin at that level (in 2009) to do the job professionally. You can have a payment service at that level I guess but don't be surprised if there is not much support if things go wrong.

I guess you might argue that at £28 per week (gross) we are expensive but I know I look after Contractors and their interests properly and professionally. Plenty of good ones out there but if it looks too good to be true it probably is.

[The SMG]

Originally Posted by Rob Crossland

Maybe I can shed some light....

At £10 per week it is very difficult to do it all fully and properly (imo). Take insurances as one example - how good is the PI/PL/EL cover at that level? Will the £10 Umbrella truly give the Contractor employment rights when he/she needs them? In my experience there is not enough margin at that level (in 2009) to do the job professionally. You can have a payment service at that level I guess but don't be surprised if there is not much support if things go wrong.

I guess you might argue that at £28 per week (gross) we are expensive but I know I look after Contractors and their interests properly and professionally. Plenty of good ones out there but if it looks too good to be true it probably is.

To be fair, I think £10 a week is simply not a viable business regardless of how well (or badly) the contractor is treated. As it turns out, this particular Umbrella are not the best at answering the phones. The 0845 number diverts to some random general receptionist (for the whole building, not just the Umbrella) who tells him she'll pass the message on. Not that I’ll be working through an Umbrella any time soon but an extra £20 or so gross per week is a small price to pay knowing you're getting a decent service.

G

[Rob Crossland]

Originally Posted by The SMG

Not that I’ll be working through an Umbrella any time soon but an extra £20 or so gross per week is a small price to pay knowing you're getting a decent service.

G

Can't disagree !

[curleyted]

Do you know if they're one of those outfits that tell you to get your own PL insurance? I wonder how many of them tell their 'employees' they need to get their own....

[The SMG]

Originally Posted by curleyted

Do you know if they're one of those outfits that tell you to get your own PL insurance? I wonder how many of them tell their 'employees' they need to get their own....

I think most Umbrellas provide Public & Employers Insurance as standard. There are maybe one or two that charge extra for Professional Indemnity insurance but these are probably the exception rather than the norm.

G

[Beefy198]

It shouldn't be provided as standard, employers' liability insurance is compulsory isn't it?

[CrazyMoose]

Originally Posted by Beefy198

It shouldn't be provided as standard, employers' liability insurance is compulsory isn't it?

Yeah but lots of Umbrella Companies include this insurance as a 'benefit' on their website – it does make me laugh. As a freelance contractor working through your own Ltd, you do (by law) need Employer's Liability Insurance but I guarantee there are literally thousands of contractors out there that don't have it. If you work through an Umbrella, it really shouldn't matter whether they have Public & Employer's liability insurance because you're JUST an employee and not therefore directly responsible for the day to day running of the company. If your client or agency decides to sue the Umbrella, frankly it’s not your problem…