If you work shifts as a nurse, you may have been asked to register with an umbrella company for your payroll. This arrangement is common – especially when sourcing roles through a recruitment agency. This blog explains umbrella companies for nurses and how to ensure you’re paid correctly, ethically and on time. Keep reading for more information.
What is an umbrella company?
An umbrella company is a payroll intermediary that processes the payroll of temporary workers (and many, many nurses in the UK). In many scenarios, umbrella companies are required to pay temporary workers because the staffing agency doesn’t have an internal payroll system in place. By joining an umbrella company, the temporary worker becomes an employee of the umbrella and will receive employee benefits. The worker goes to work as normal and submits timesheets for their work hours. Their funds are then passed down the supply chain (from end-hirer, to recruitment agency, to umbrella), where the umbrella processes the worker’s pay in accordance with Pay As You Earn (PAYE) – before sending them their net salary. We explain how umbrella companies work in more detail below, focusing on nurses.
Why are nurses required to use an umbrella company for payroll?
Nowadays, a lot of end-hirers and recruitment agencies do not have in-house payroll facilities and choose to outsource the payroll of temporary workers (including nurses) to umbrella companies. There are many reasons companies do this, including:
- Lack of payroll experience and knowledge
- Umbrella companies are payroll experts
- Help businesses remain compliant with complex rules and regulations
- Save businesses money by reducing staffing costs and equipment (such as software) costs
- Enhance the payroll experience for temporary workers because a lot of umbrella companies offer more than just payroll
If you seek a role through an agency that gives you a choice of using the agency’s in-house payroll or an umbrella company, please read the following article for more information: Umbrella company vs agency payroll: which should you choose?
The umbrella company process explained for nurses
A high percentage of nurses will source a role through a medical recruitment agency. In this scenario, umbrella companies are common within the supply chain because most recruitment agencies do not operate payroll for temporary workers. Instead, recruitment agencies require temporary workers to be paid through an umbrella company – an external payroll provider that will receive the worker’s gross funds (assignment rate) and then make the legal deductions (PAYE) before sending the worker their net salary.
Here is the umbrella company process for nurses in more detail:*
- A nurse called Jennie accepts a new role she sourced via Medical Recruitment Limited – a recruitment agency specialising in placing medical professionals in temporary roles. The business Jennie will be working for is Nurses Foundation (the end-client).
- Medical Recruitment Limited, the agency, presented Jennie with a Preferred Supplier List (PSL) – a list of umbrella companies that they would encourage Jennie to use.
- Having conducted thorough research, Jennie decides she wants to register with Colourful Umbrella Limited – one of the umbrella companies on Medical Recruitment Limited’s PSL.
- Jennie rings Colourful Umbrella Limited and requests an umbrella company take-home pay calculation. Colourful Umbrella Limited send her a tailored document which explains the deductions that will be made to her pay and what her expected net salary will be each time she’s paid.
- After reviewing the take-home pay calculation and accepting it’s transparent and compliant, Jennie decides to go ahead and register with Colourful Umbrella Limited. To complete this process, she provides numerous pieces of personal information, including full name, address, contact information, national insurance number, bank details and assignment information. The umbrella company also requests a P45 (if available), proof of identification and proof of Jennie’s right to work in the UK. Finally, she is required to read, sign and return a Contract of Employment.
- Having completed the registration process with her umbrella company – Colourful Umbrella Limited – Jennie is set up and ready to be paid.
- Jennie goes to work at Nurses Foundation and completes her first week, which consists of 40 hours of work with an hourly rate of £25.00. Jennie has been required to submit her hours worked by filling out timesheets and sending these to Medical Recruitment Limited (the agency) and Colorful Umbrella Limited (the umbrella company).
- Nurses Foundation, the end-client, send Jennie’s gross funds (the assignment rate) to the recruitment agency – Medical Recruitment Limited.
- Medical Recruitment Limited then transfer Jennie’s gross funds to Colourful Umbrella Limited.
- Colourful Umbrella Limited deduct a margin (the only income that umbrella companies generate for themselves is the margin, and this is taken from the gross rate – saving Jennie on tax). The umbrella then processes Jennie’s payroll in accordance with HMRC’s tax system for employees – Pay As You Earn (PAYE). The deductions include income tax, Employee’s National Insurance Contributions, the employment costs (Apprenticeship Levy and Employer’s National Insurance), student loan repayments and pension contributions.
- Once Colourful Umbrella Limited has made the deductions, they transfer Jennie’s net salary to her personal bank account and issue her a payslip explaining exactly what they have done to her gross salary.
- Jennie is happy with her pay, and the process continues. Once she reaches the end of her assignment with Nurses Foundation, she finds another similar role for a different end client. She is entitled to continue using Colourful Umbrella Limited – granting her continuity of employment and making life easier. However, if the service Jennie received from the umbrella was sub-par, she should immediately transfer to another umbrella company because the process is easy.
Are nurses worse off being paid via an umbrella company?
Umbrella companies deduct a margin (essentially a small “fee”) each time they process your payroll. Assuming the umbrella is compliant, the margin is likely to be between £15 and £30 per week. Also, when you use the services of an umbrella, you’ll notice that they deduct the employment costs from your assignment rate – something that permanent employees do not experience. This is because while you’re being paid by the umbrella (and they employ you), you are not actually working for them because you’re working for your end-client. Therefore, the umbrella deducts the employment costs, and you’ll see this on any take-home pay calculations you request from compliant umbrella companies and payslips.
Initially, the paragraph above might scare you and put you off using umbrella companies for life. However, please consider the following. End-hirers and recruitment agencies frequently advertise roles as “umbrella only” because they do not want to manage the payroll of temporary workers themselves (many don’t have the facilities or staff to process the payroll of temporary workers). After all, there is a tremendous amount of administration and laws and regulations to abide by. Therefore, outsourcing payroll to an umbrella saves recruitment agencies and end-hirers money (lower staffing and equipment such as software costs) and reduces their administrative responsibilities. With this in mind, it’s now extremely common for recruitment agencies (or end-hirers if no agency is involved) to offer temporary workers (including nurses) a higher “umbrella rate of pay” which takes the umbrella’s margin and the employment costs into consideration. Essentially, this rate will ensure that temporary workers are no worse off using an umbrella for payroll than if they were paid directly by the agency or end-hirer.
Back to the original question – are nurses worse off being paid through an umbrella company? The answer is no if you seek a role through a compliant agency/end-hirer that offers an “umbrella rate of pay” to take the umbrella company’s margin and employment costs into consideration.
What are the benefits available to nurses who use an umbrella company?
Continuity of employment – Continuity of employment is a significant benefit of using an umbrella company because you can source roles with multiple hirers while always having the same employer for payroll (your umbrella). This is known as continuity of employment and will help you financially – such as if you’re looking for a better mortgage or you’re seeking external finances such as a bank loan.
Employee benefits – By registering with an umbrella company, you become an employee of theirs. This entitles you to employee benefits, including Statutory Sick Pay and Paternity/Maternity Pay.
Free insurance cover – Most umbrella companies will provide you with substantial insurance cover – free of charge. The common insurances that are included with most umbrella companies services is Employers Liability Insurance, Public Liability Insurance and Professional Indemnity Insurance. If you require additional insurance, speak with your umbrella company and they may be able to provide you with exactly what you need.
Same Day Faster Payments – A majority of umbrella companies will offer Same Day Faster Payments, meaning you should receive your funds the same day they’re processed.
Compliance – By processing your payroll with PAYE (HMRC’s tax system), you can be sure you’re paying the correct, legal tax and NI contributions.
Added extras – The umbrella company marketplace is saturated, and this could work in your favour. Some umbrella companies are offering little extras to entice you to register with them, rather than a competitor. For example, you may find a few umbrellas offering employee discount schemes such as Perkbox.
Easy registration process – Registering with an umbrella company is easy and shouldn’t take longer than 15 minutes.
No hidden fees – The only income compliant umbrella companies generate for themselves is the margin they deduct each time they process the payroll of an employee. There are no tie in fees and no hidden costs. You will only pay the umbrella’s margin when you’re paid – meaning you can remain on their books for future assignments, even when you’re not actually working (and no fees will apply).
Minimal administration – Being paid by an umbrella company is regarded the easier way for temporary workers and nurses to be paid. Once you register, you won’t have much administration to complete.
For more information, please read: The advantages and disadvantages of umbrella companies.
Are umbrella companies ready to cater to nurses?
Most accredited umbrella companies in the UK are ready to welcome nurses and pay them compliantly. However, before you choose a particular umbrella company (or pick one from a recruitment agency’s Preferred Supplier List), be sure to carry out due diligence to check they’re compliant and will provide you with an efficient payroll service.
What happens if a nurse wants to change umbrella companies mid-assignment?
Nurses should never feel pressured into using an umbrella company they don’t want to. Nor should they feel pressured to continue using the services of an umbrella company if it has let them down. Changing umbrella companies is easy, and it’s well worth doing it as soon as you start to have a dissatisfying experience. Changing umbrella companies’ mid-assignment might be rare. Still, it’s entirely feasible and shouldn’t affect your payment frequency if the whole supply chain is aware of your decision and has the information about your old and newly chosen umbrella.
For more information about changing umbrella companies, please read our article: Can you switch umbrella company when mid-contract?
A warning for nurses – picking a compliant umbrella company is essential
Unfortunately, several non-compliant umbrella companies (Tax avoidance schemes) are out there – many directly targetting nurses and medical professionals. You must use the services of a compliant, UK-based umbrella company that will process your payroll in accordance with HMRC’s rules and regulations (PAYE).
The consequences could be severe if you use a non-compliant payroll provider, even by mistake. HMRC are increasing their efforts to clamp down on tax avoidance schemes and those who engage with them, and it’s common for workers to be given retrospective tax bills and penalties – often for life-changing amounts of money.
Here are some of the obvious warning signs of a tax avoidance scheme:
- Based outside the UK
- Short trading history
- Founded by professionals without a track record
- Lack of reviews
- Claims to help you pay less tax
- Unethical online phrases on websites such as “HMRC approved” (because HMRC doesn’t approve individual umbrella companies)
- No professional accreditation
- They process payroll in unusual ways (not PAYE), such as by paying you in loans, credits, shares, etc.
- Difficult to contact
- Website features fake testimonials
Advice to help nurses pick a compliant and trustworthy umbrella company
There are over 500 umbrella companies in the UK. With so many choices, it’s not easy picking a compliant umbrella company. However, we have some advice:
- Only use an umbrella company that has a professional accreditation from the Freelancer and Contractor Services Association (FCSA) or Professional Passport. These two bodies are dedicated to ensuring the supply chain of temporary workers is compliant with HMRC’s rules and regulations. For umbrella companies to earn an accreditation from the FCSA or Professional Passport, they must undergo a strict series of audits to ensure that all of their internal processes are compliant and prove they operate ethically and in their employees’ best interests.
- Make sure they have an established trading history.
- Have a look at online review platforms, such as Trustpilot and Google Reviews.
- Request a take-home pay calculation and make sure all deductions are clearly labelled and you’re presented with a realistic net pay figure.
- Shop around and speak to more than one umbrella. It’s a good idea to compare a handful to ensure you pick the very best for your circumstances.
- Have a look at the government’s website and ensure the umbrella you’re interested in hasn’t been issued with a Scheme Reference Number (SRN). For more information, please read: HMRC named and shamed tax avoidance schemes.
- Read the Contract of Employment word-for-word, and if there is any content you don’t understand – do not sign it and go ahead and look for another umbrella company.
For more information, please read our guide: Choosing the best umbrella company.
Top 10 umbrella companies
If you are a nurse interested in using an umbrella company for the first time, or perhaps you want to change umbrella companies, we have just the resource for you. Our top 10 umbrella companies are accredited by either the FCSA or Professional Passport, and some have special offers at the moment. Please check them out.
* This guide has been written to try and explain the umbrella process and address the most commonly asked questions by contractors and freelancers about umbrella companies. It’s been written in good faith and is designed to be as accurate as possible (please read our website’s disclaimer). The umbrella payroll process may vary slightly between providers. What is essential is that you choose a compliant umbrella company that will pay you in accordance with HMRC’s tax system – PAYE. This will ensure you pay the correct tax and NI. Always carry out thorough due diligence before registering with an umbrella company, and never feel pressured to use the services of a company you don’t want to. If you suspect an umbrella company you come across is non-compliant, you can report them to the government (for more information, please read: Help protect fellow contractors and freelancers and report non-compliant umbrella companies).
