What Happens if my Umbrella goes Bust?

(4 minutes to read)

An umbrella company going bust is a worrying scenario for any umbrella contractor – here we give advice on what action you need to take if you do find yourself in this situation.

Firstly, we’ll take a look at how an umbrella company and contractor relationship works with regard to finances:

How do you get paid through an umbrella company?

As an umbrella contractor, you are effectively employed by your umbrella company. It is the middle man between the contractor and their client with the umbrella employing a temporary worker on behalf of an employment agency and the agency providing the services of the worker to their clients.

The umbrella company will provide you with a payslip – they will pay you for the work you do for an employment agency’s client and will deduct any income tax or National Insurance Contributions (NICs) due, as well as administration costs.

Your payslip will include your contract pay (before and after any deductions), the number of hours you’ve worked and the amount of deductions.

Umbrella company contractor holiday pay

As an employee of the umbrella, you are entitled to a number of benefits, including holiday pay.

Your options are to either be paid your holiday pay in advance (which will be paid alongside your weekly or monthly pay) or you can accrue it, in which case it will be kept within a ‘pot’ by the umbrella for you to reclaim whenever you take annual leave.

For more information on this, read our Umbrella Holiday Pay page.

If an umbrella company goes bust, then a contractor is potentially at risk of losing not only their owed pay but their holiday ‘pot’ too.

Warning signs that my umbrella company might be going bust

The warning signs might not always be obvious, but if an umbrella company is struggling financially then you may find yourself waiting on pay longer than usual.

It is possible for you to contact your client to see whether they have paid the umbrella for your services, and if they can confirm that the umbrella has received payment when you haven’t, this could certainly be a worrying sign that something’s not right.

Keeping on top of your side of things, such as ensuring timesheets are filled out promptly and submitted as soon as possible, could protect you from losing as much of your money if the company is facing financial difficulties.

Act quickly

As soon as you are aware that your umbrella has gone bust, it’s worth contacting your end client directly if you are still waiting on payment; it’s possible the client could still be paying money into the umbrella for the work you have completed.

If you are owed payments from the umbrella then you’ll need to register your debt with the administrator in charge of dealing with the insolvency – you may need to find out this information for yourself, or you may be contacted directly.

Unfortunately, there is a chance you may never see the money owed to you.

Finding a new umbrella company

There are a number of reasons why an umbrella company goes bust, but it will usually be due to miscalculating costs, either from the contractor side of things or the client (or both!). However, it isn’t a common situation and although you can’t predict these things happening, it shouldn’t put you off contracting through an umbrella company.

Doing your research could potentially take away some of the risks; for example, choosing an umbrella that’s been in business for a long time is key because you then know that they have the knowledge and experience needed to run a successful company.

Other areas to look into include:

  • Good reviews
    Look at reviews to get an idea of what people really think of the umbrella company you’re thinking of working through.
  • Awards
    Recognition for the work they do is always a comforting factor when it comes to choosing the best umbrella company – make sure that their awards are fairly recent too.

For more information on what to look for in an umbrella company, read our Best Umbrella Company page.

We hope you found this page helpful. Our team of experts are available to answer any questions you may have, so drop us a line on 01206 591 000 or email Jaime at jaime.thorpe@contractorumbrella.com.

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