From quite a small number of companies over ten years ago the number of  companies offering their umbrella services to the growing contractors and freelancers market has also increased. Up to 2007 Umbrella companies could offer to pay their contractors either by company dividends with the contractor being a Director of his or her own company, or by the PAYE system. Since 2007 the only option is to pay by PAYE. Umbrella companies act as an employer to contractors and freelancers and are governed by the rules of HM Revenue and Customs and PAYE rules. Thus one company cannot promise to pay you more than others as the only difference between companies will be the level of their fees – as well as the additional services they will offer (again at a cost to the contractor). Contractors will want to look at the different company fees: reputable companies will charge a flat fee irrespective of the amount the person is actually earning as the amount an individual earns does not really change the level of admin needed. A contractor should be paying an umbrella company between £15-£20 per week but will vary with the level of services for that amount. (For example, is the fee for professional indemnity included in the fee?).

Many busy freelancers and contractors will appreciate the umbrella services as this takes much of the hassle out of their working life and enables them to concentrate on their work.

Not everybody wants to manage their own complicated accounts.

Companies will often choose to use contractors rather than hiring permanent staff for a number of reasons:

1. When they want to undertake a project or development that their own staff either have not the skills to do or are too busy to add to their current workload

2. Contractors will often be willing to work flexible hours – after all it is to their advantage to get the job finished more quickly if working on a specific project

3. They don’t have any long term commitment to their employment

4. they save money overall – an employer has to pay sick pay, holiday pay, redundancy, and employer’s national insurance for starters. This means they can afford to pay you more

So what is the benefit of contracting?

Contracting isn’t for everyone, many people are averse to the risk of continued employment, and the reasons for liking contracting are very individual though most like the variety and flexibility of the work – and the fact that they can choose when to take holidays and choose which contracts to take. This allows many contractors to develop excellent CVs in case they could shoehorn themselves into employment in the future. 

The qualities that make a good contractor are just as much to do with personality and personal qualities as it has to do with their work-related skills. The high quality work related skills are essential, but so are other qualities.

1. Flexibility – A contractor needs to be able to suss out the differences in work styles and work conditions on different site- recognize different cultures and appreciate different unspoken company “rules” and ways of working. Any that do not have this level of self and group awareness are going to find themselves sticking out like a spare thumb.

2. Has the ability to get on with people and make successful working relationships. This does not mean that contractors need to be extrovert, life and soul of the party types, just pleasant and self directing.

3. Can help people without talking down to them or criticizing their ways of working- a contractor will inevitably over time develop knowledge of many ways to doing things and can be able to share this information, it needs to be done with some sensitivity. If folks don’t want to know about different ways of working, don’t force it on them.

4. Collects a list of clients and successful projects and will be able to approach them for work at times as well as get referrals from them to other companies. A database of potential clients will be built up over time a hedge against down time.

In some cases the clients may want to specify the contractual terms for work – this is true for some project work that will be out for tender, but the freelancer will want to set up his or her own terms and conditions of work with the client. Much of this will be to do with protecting intellectual property rights if a client defaults on payments and other stipulations of ways of working together.

The basic contract should state what it is you are going to do for the client and what this will require from the client in return – i.e. the amount to be paid. This is the simplest agreement though in order to protect you from canny clients keep adding stuff onto the work the actual scope of the project should be defined and the time frame involved. If the client adds work then it should be clear that this will need to be formally requested and costed and added to the contract. Sorting this at the outset can save a lot of unpleasant wrangling.

The contract should make clear you are an independent contractor and not an employee (avoid IR35 problems) and also specify any agreed payment schedule for a larger project (most small projects are paid on completion). To protect your intellectual property rights you may wish to specify that the design rights stay with the freelancer until final payment is made. If the client wants to start using the design from the outset you may need some specialist advice about adding to the contracts leasing the rights until the project is finished.

Contractors and freelancers starting off may well feel they can’t argue with their client over the terms and conditions of their contract. So they set up a contract which makes certain stipulations and a client just won’t agree. Mostly those new to negotiating contracts will feel they have to give way, especially if the amount is large and they feel they must get it at any cost. It may be that the client won’t agree to payment terms, either the overall cost or the stipulation that a percentage of the contract payment has to be paid at the completion of certain defined stages, or you stipulate that the intellectual rights stay with you until the completion of the project and the client wants to use them straight away.  So you don’t agree what do you do?

1. Don’t give way – stick with your conditions

If these terms are vital to you then stick to them – as with all dealings with clients you will just have to learn to stand your ground. If you have the expertise they need they are much more likely to agree than try to find someone less good they can bully.

2. Compromise

Agreeing to a compromise is usually the best option and can be a win-win for both you and you client. Perhaps you agree to fewer staged payments and agree to lease the work to them until project completion.

3. Walk Away

You’ll get to know the feeling when this relationship is just not going to work or you don’t feel you can trust this company. So they won’t pay you until the end of the project? And how likely are they to try to slide out of ever signing the contract as finished. If you have doubts just leave it.