As a contractor working through an umbrella company, the concept of continuity of employment is more than just a technical detail—it’s a significant advantage. In this article we look at why continuity of employment is beneficial can enhance your professional and personal life as an umbrella contractor.
Understanding Continuity of Employment
Continuity of employment refers to the unbroken duration of time an individual has been employed by the same employer. For contractors, this is exactly what an umbrella company can do, through an overarching employment contract. This contract ensures that even between assignments, the employment relationship remains intact. And here’s why this matters:
1. Stability and Security
Unlike traditional freelance work, where each contract might be with a different employer, working through an umbrella company means you maintain a continuous employment status. This stability is crucial when it comes to financial planning and securing loans or mortgages. Lenders and financial institutions often favour applicants with continuous employment, viewing them as lower risk compared to those with intermittent freelance work.
2. Administrative Simplicity
One of the significant advantages of being an umbrella contractor is the reduction in administrative burden compared to self-employment or running a limited company. There is no need to have an accountant and stress about your responsibilities as a company director. As an employee of an umbrella company, your tax deductions are taken care of via the PAYE system. Your payroll remains consistent with the same organization, no matter how many assignments you take on. This consistency reduces the likelihood of administrative errors that can arise from frequently changing employers.
3. Financial Benefits
Having a stable employment record can make it easier to obtain finance such as mortgages or loans. Traditional freelancers often face challenges in securing these financial products due to perceived income instability. With an umbrella company, your continuous employment status portrays a stable income stream, making financial institutions more likely to approve your applications. This is particularly the case with mortgages, which is why we teamed up with Freelance Financials, who are contractor specialist mortgage brokers with an excellent track record in helping contractors.
4. Consistent Tax Code
Having one employer helps ensure your tax code remains consistent. Tax codes are issued by HMRC based on the income information they have on you reported by employers and or through tax returns. Having one employer do the reporting consistency helps you avoid unexpected increases in income tax and National Insurance Contributions (NICs), which can occur when switching between multiple employers. A stable tax code simplifies your financial planning and ensures you’re not caught off guard by sudden changes in your take-home pay.
5. Employee Rights
As an umbrella contractor, you benefit from the same statutory rights as any other employee in the UK. This includes entitlement to the minimum wage, paid holidays, pension auto-enrollment, and eligibility for sick, maternity/paternity pay. These benefits provide a safety net that’s often unavailable to independent freelancers, ensuring you have support during times when needed the most.
6. Agency Workers Regulations (AWR) Rights
After 12 continuous weeks in the same role with the same client, umbrella contractors become entitled to the same “basic working and employment conditions” as permanent employees. This includes equal pay, working hours, holidays, and other employment conditions. Continuity of employment helps you reach this threshold, securing additional rights and benefits.
Choosing the Right Umbrella Company
While the benefits of continuity of employment are clear, it’s essential to choose a reputable and compliant umbrella company. Look for companies with accreditations from professional organizations such as the Freelancer and Contractor Services Association (FCSA) or The Association of Professional Staffing Companies (APSCo). These accreditations ensure that the umbrella company adheres to industry standards and regulations.
Be wary of companies that promise unrealistically high take-home pay or engage in complex tax avoidance schemes. Such practices can lead to significant financial and legal issues later on.
For more information or to discuss your specific situation, please contact SmartWork or visit our knowledge base. Don’t forget to follow us on LinkedIn for the latest updates and helpful articles.
