Posted on 27 April 2009

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This month has seen additional consolidation of the umbrella market, further reducing the numbers of companies trading, a phenomenon predicted even before the recession by Rob Crossland, managing director of professional business services provider, Parasol.  The latest casualty, Liverpool-based Filetravel, officially went into administration last week, after Safe Solutions was acquired by another umbrella company the week before. The closure of umbrella companies not only leaves contractors without a valid contract of employment, but also wondering when and whether they will be paid.

Rob Crossland ventured, as long ago as January that many firms supplying services to contractors will start to find trading conditions difficult, and consequently, not all will survive.  In this article Parasol’s finance and operations director Anita Whittle, addresses the implications for contractors if their umbrella company ceases trading, and the importance of responding quickly in choosing a new provider that is customer focused.

We know that according to figures published by HMRC, there are currently 1 million agency workers in the UK, although many umbrella companies would put this figure much higher.  Whatever the exact number, a significant percentage of the current UK labour market is employed in this way, so any changes to this workforce impact directly on the wider UK economy.

Elements beyond the control of contractors such as the legislative environment have threatened the flexibility and appeal of the contracting world.  Equally, issues such as employee expenses and IR35 have caused great ambiguity and uncertainty.  As contracting boomed over recent years, around one hundred PAYE umbrella companies formed, but the quality and range of services greatly differed.   On forecasting the consolidation of the market Rob Crossland said that over the next 12 months current umbrella trading numbers could drop as low as 20, but this should still leave contractors with plenty of choice to find a reliable provider to suit their needs.

A suitable umbrella company should offer a combination of good customer service, reliability and compliance.  As far as possible contractors should also seek to find out whether the provider has a solid financial structure.

It is important for contractors to look to independent organisations for endorsement or recommendations of umbrella companies. Contractors should be looking out as to whether an umbrella is an affiliate member of The Association of Professional Staffing Companies (APSCo), has been recommended by the Professional Contractors Group, or is accredited by Professional Passport. But as much as contractors are encouraged to investigate the credibility of an umbrella company, they are also inclined to rate the quality of service offered.  Even more so now, given the changing landscape of the contracting world.

Contractors will naturally be concerned with how quickly they will be paid once their agency has sent their money to the umbrella company.  Some umbrella companies only run one payroll a month.  This approach means that if the umbrella goes into administration the contractors will be at higher risk of not being remunerated, or only receiving a certain percentage of their earnings. In contrast, Parasol safeguards against this by running four payrolls per day and ensuring that over 95 per cent of the money that comes into the company is paid to the contractor on the same day.

Contractors should now expect same day payment from their umbrella company, wherever possible.  Contractors should demand a service that shows them exactly how much they are going to get paid, enables them to monitor the stage of their invoicing, as well as giving them control over other additional transactions. Online systems, such as My Parasol, not only give the contractor more day to day control over their money, but the short payment turnaround reduces longer-term exposure to financial risk.

In an increasingly uncertain world contractors should limit their exposure to financial risks by choosing the right umbrella company that meets their requirements for efficiency and compliance. In the event that their umbrella company ceases trading contractors need to respond quickly to find themselves alternative provision and to ensure they chose a financially solid umbrella company that puts their needs first.

ENDS

Editor’s Note:
Professional Business Services Provider - Parasol is the UK’s leading PAYE umbrella company providing payroll services for contractors in IT and engineering, either directly or through agencies.  Created by contractors, for contractors Parasol take care of timesheets, invoicing and tax whilst providing a host of added benefits to ensure contractors’ careers are HMRC compliant, legal and hassle-free, with no risk of unexpected tax bills.