Contracting – is it still worth it?

Contracting – is it still worth it?

On the 30th of October 2024, Chancellor Rachel Reeves delivered her first Budget, where she pledged to ‘invest, invest, invest’ in order to grow and restore economic stability.

The Labour Party warned there would be ‘difficult decisions’ to make along the way, implying that some areas of society would be taking the brunt of it to get the economy back on its feet.

And there are certainly some self-employed professionals who feel that the changes announced in the Budget will have a negative effect on them.

Increased Employers’ National Insurance contributions
In a move that the IPSE described as a ‘hammer blow’ to the umbrella sector, Reeves announced that from the 6th of April 2025, the Employers’ NI rate will rise from 13.8% to 15%.

Because an umbrella company technically employs workers, you might expect Employers’ NI to fall on the umbrella to pay, however, this arrangement differs compared to a ‘normal’ permanent employer setup.

With the umbrella format, the company isn’t benefitting from any of the work carried out, and so this cost is passed on to the contractor – the Employers’ NI comes out of the contractor’s income before their salary is calculated.

Umbrella company contractors will naturally have concerns about how this increase will affect their take-home pay, while recruitment agencies will need to look at how they navigate this and ensure they support their workforce in the right way.

As an umbrella company contractor:

• this increase will of course impact your rates, which means adjustments might need to be made when it comes to pay rates or commercial arrangements to create a fairer balance in take home pay.
• remember that you still have the security of full employment rights, such as holiday pay, sick pay and pension contributions.

As a recruitment agency:

• you’ll need to navigate possible adjustments to pay rates or commercial arrangements to ensure contractors continue to receive fair pay while at the same time meeting compliance requirements. A good umbrella company will be able to help with this, providing guidance that will make the transition smoother for everyone involved.

Ultimately, working with a trustworthy umbrella company is key and partnering up with the right one will allow you to manage these changes as effectively as possible, showing contractors that their financial wellbeing is a priority and ensuring that your workforce remains confident and secure.

The benefits of contracting through an umbrella company

Despite these changes, there are still so many benefits that come with contracting through an umbrella company:

• Contractors are often able to command higher rates of pay compared to their permanent counterparts and the more experience and skills you gain along the way, the more you can potentially charge.
• Unlike a limited company contractor or sole trader, you won’t need to worry about completing a self-assessment tax return as this is all sorted for you by your umbrella company – they will provide you with a payslip, deducting any income tax or NI.
• You’re entitled to standard employee benefits, such as statutory maternity/paternity and sick pay, as well as annual leave, which will be calculated based on the hours you work.
• You can choose your clients and if you’re not happy with a client, you have the freedom to change contracts if you so wish – this is a lot easier than having to change jobs should you not get on with your boss etc.
• You’ll be able to gain a wide range of skills and experience that a permanent worker might not be able to. For example, you’ll find yourself in situations where you can take on new challenges; working across different sectors and industries, as well as gaining experience in new environments and getting to connect with different people.

If you’d like to sign up or need any further information, please call one of our friendly experts on 01206 591 000 or email Sophie at sophie.lewis@contractorumbrella.com.