Perhaps it’s a bit of a stretch to say that bigger is better when it comes to umbrella companies. But size does matter when it comes to that company’s credit line or cash reserve, because in the event of a financial maelstrom, the buck stops with the umbrella company – literally.
To fully understand the importance of engaging a mature and financially robust umbrella company, it’s worth reviewing its business model. Surprisingly few contractors or agencies take real cognisance of the financial process that’s involved, and the ramifications to them. So they need to follow the cash to appreciate why large credit lines or cash reserves are important to their peace of mind.
In simple terms, an umbrella company acts as employer to agency contractors who work under an employment contract, invariably finding work via a recruitment agency. The umbrella company pays the contractors for work done via salary and expenses and expects to receive payment in from its client – the agency.
Despite an agency paying the umbrella company or not, the umbrella company is still legally required to pay its contractors; because these contractors are its employees. In the case of small or new umbrella companies, it is likely that they don’t have the necessary cash reserves to manage the fallout of one its agencies not paying them – or paying them late.
Using an umbrella company with financial firepower ensures, that regardless of what happens in the payment process, a contractor will always be paid. The bigger umbrella companies can also ensure that there is flexibility of payment. This means that there is no slowdown in any payments being made, irrespective of which recruitment agency has failed to pay their invoice or what day payment has to be made.
And bigger means that there are resources at hand to deal with the ever-changing legal landscape that remains a real challenge within the industry. Be it pension legislation, Real Time Information (RTI) or the Agency Workers Regulations, an umbrella company with clout and experience can navigate these modifications in the law with ease. They will be able to make the necessary investments of time, talent and technology to ensure compliance and a seamless process that offers contractors peace of mind.
Don’t be fooled by the counter-argument that small umbrella companies offer more agility or a more intimate level of engagement. Keeping internal account teams small and focused on client relationships, such as those that we’ve structured at Exchequer Solutions, will ensure that contractors receive levels of communications that are relationship-based and knowledgeable. The only difference will be that bigger umbrellas will have the financial muscle to provide the necessary peripheral systems and guarantees so that not only do contractors get a personal service, they also get a profitable one.
