It can be a tough life working as a contractor, especially if you are starting out on working life as a skilled worker, but also if you have been working for some time and want to branch out and work for different employers.
If you’ve set up your own business as self-employed, a limited liability partnership or as a limited company, you will always need support when it comes to dealing with the financial aspects of your business. Unless, of course, you are a whizz-kid accountant! Most of us aren’t.
Where can you access the support that you need so that you can earn as much as you can without the ongoing hassle of dealing with all the finances that are essential to the smooth running of your business?
Going through a recruitment agency
Agencies that get you work and negotiate on your behalf with prospective clients can get you a higher rate of pay than if you negotiated directly. That’s their job. However, they will also get a good margin for themselves, which is fair enough if they get a range of freelance opportunities for you that are convenient both for you and the client/customer.
Agencies will often not take on contractors on their own payroll who are temporary workers, with the majority of them using umbrella companies to deal with the nitty-gritty of the finances. By not employing you, they don’t have to pay Employer’s National Insurance and thus keep their costs down.
Many employers also prefer to employ freelances so that they don’t have to put them on the payroll, and that makes a lot of sense for employing people on short fixed contracts with a specified outcome at the end.
Benefits of being a contractor
Mostly, it comes down to money. In most cases, niche contractors can make more money than if they were working directly for a client. It’s not the case for everyone, but there are more opportunities for contractors to earn larger amounts than for those in a more standard employment contract situation.
You also have control over what you are prepared to do and what you’re not interested in, and, as a freelance, you have more control over when you work and for how long, though that depends on the type of freelance contract that you agree with a client.
However, of course, you may not have a contract of employment when you go through a recruitment agency, so you need to make sure that you, and anyone who works for you on a contract, can deal with all the administrative affairs that have to be organised. If you don’t have the knowledge, experience or time, umbrella companies can step in to support you.
Why use an umbrella company?
When you’re working out the best model for developing your business, it can be the lack of official employment status that can stymie you. If you are deemed as self-employed as a contractor, you could find credit hard to get – tricky if you need tools, equipment, a car or a van to do your work effectively. Finance companies generally consider the self-employed as a higher risk because their income is not guaranteed.
An umbrella company can furnish you with a proper contract of employment so that you will be more likely to access funding for what you need, because even though you are not a direct employee of the client or clients for whom you are working, you still have employed status.
Another key aspect of umbrella companies is their ability to deal with contractor pay and all the legislative and administrative functions that have to be addressed. If you’ve attempted to deal with HMRC, then you may have little hair left as you’ve been, metaphorically, tearing it out while waiting for hours on the phone, only to be cut off having wasted valuable time – and money.
An umbrella company can help solve the problem by using a traditional PAYE model so that everything to do with your taxed income is dealt with. It can also take care of all your accounts, the payments and returns to HMRC and, of course, the communications that you might have found extremely difficult and annoying.
Explore your options
Operating as a contractor can be very beneficial, and freelance working is gaining in popularity as people take control of their own working future. Take the time to work out what the best setup is for you, and never be afraid to contact financial professionals who can work with you to maximise your income.