Payroll requirements for setting up an umbrella company

Yellow umbrella

Umbrella companies offer an employment model that’s ever-increasing in popularity with contractors. This is largely because contractors operating under an umbrella company are employees and are therefore exempt from the controversial IR35 off-payroll rules.

To meet the rising demand, an emerging trend has seen existing accountancy firms setting up umbrella companies to cater to the changing needs of their clients. However, as the payroll requirements are very specialist, some start-ups may find themselves underprepared for paying their workers.

In this article, we cover the main payroll considerations when it comes to starting an umbrella company. If you’re completely new to the industry, we recommend reading our umbrella company overview.


Umbrella payroll is highly specialist

We’ve spoken with start-ups that have confessed they underestimated the complexity of umbrella payroll. That’s why it’s essential to fully understand the requirements of paying your workers correctly through the umbrella payment model before anything else.

As a payroll software provider, we’re happy to assist and guide our clients with the tasks they complete using Codapay. However, we always recommend that start-ups use a specialist consultant to provide guidance on their company structure and payroll obligations.


Standard accountancy software isn’t fit for purpose

Another common misunderstanding is that standard accountancy software can plug the needs of payroll for umbrella companies. This simply isn’t the case, and umbrella payroll software is a must to meet the complexity of paying workers as a third party.

You will often find standard accountancy software is ideal when it comes to PAYE payroll. However, when models such as umbrella or CIS are required, it doesn’t offer a simple or efficient way to run payroll calculations, with manual calculations needed. This is a high-risk approach, risking costly mistakes in your payroll and also negatively impacting the efficiency of your processes.


Preparation is essential

‘Yesterday’ is a response we often hear when asking about a preferred delivery time for our software. And we’re not surprised, especially when some big accountancy providers allow you to sign up online and get started there and then.

However, this isn’t the same for the umbrella company market, meaning it’s essential to plan for implementation time. Whether you’re a new or well-established business, there are many settings and customisations that you need to understand to adapt to your individual business needs. Correct configuration of the software and set up of data is essential, and it usually takes at least 4 weeks from signature to get everything ready.

Plus, training is a necessity for new users of the software – especially ones who have just set up an umbrella company. We’re enthusiastic about ensuring our clients are fully accustomed to the system and our processes before go-live, which is why we provide thorough step-by-step onboarding.

Another time-related requirement is data migration, ensuring you have the knowledge and access in your previous system to bring over vital information such as year-to-date figures and RTI references.

It’s worth checking with providers what their ongoing support looks like, from response times to costs, to ensure it’s suitable for your needs as a new umbrella company. At Codapay, we provide a knowledgebase packed with self-serve articles and an easy-to-use ticketing system ran by our UK-based team, with an average response time of just 30 minutes.


What to look out for

Choosing payroll software for an umbrella company is important to get right. We’re passionate about payroll and ensuring those new to the market don’t get sucked into the sales spiel. We’ve covered all your considerations in great depth in our free guide on choosing payroll software – it’s well worth the read!

All software providers are different and have unique pros and cons that you’ll need to weigh up. The best way to gauge suitability is to book demos with a number of providers prepared with questions based on your requirements. Our free guide provides a template for you to audit your current solution which will prompt you with questions to ask.

Your key considerations when it comes to settling on a solution should be:

  • Suitability for paying your workers e.g. frequency, pay models, speed of processing
  • Technology requirements – cloud vs on-premise
  • Ease of use – it’s a complex industry, so keep your software as simple as possible
  • Great customer support – you’re new to the industry and will need speedy assistance

Going back to our previous point on implementation time, avoid choosing an option based on the fastest turnaround time. Putting urgency on choosing a solution could leave you trapped in a contract with a less-than-ideal provider. Also, while pricing should be a consideration, going for the cheapest because it’s the cheapest could cost you in the long run.

It’s in every software company’s sales team’s best interests to convince you that they’re better than the rest, which can make it extremely difficult to choose the right option. When you’ve weighed up the options through one-on-one demos and considered the capabilities of each, you’ll have a good understanding of what you’re looking for.


Introducing Codapay

Our payroll software is optimised to meet the unique and ever-changing needs of umbrella companies. We offer both style and substance, with an easy-to-use interface and feature-rich technology to make payroll easy. Plus, our reliable customer support is rated 4.54/5.00 and is provided by our knowledgeable UK-based team.

Find out more about our umbrella solution and book a free demo today!

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