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The Secret Contractor: Navigating the world of umbrellas in my first inside IR35 engagement
- 24 Jan 2024
In part 1 of my story, I explained how I found myself in the predicament of taking my first inside IR35 engagement.
To recap, when I was approached for an inside IR35 role, I asked for what I had considered to be a silly amount to take the role and to my surprise, they offered it. For the first time in my freelancing career, I was taking an inside IR35 role and operating via an umbrella company.
In this second part, I want to share my experience of negotiating terms and dealing with the many parts of modern contractor supply chains.
I found it extremely difficult to negotiate the terms
Working with an umbrella company is very different. The contract I ended up signing with them was very different to the commercial terms I am used to as a freelancer.
I found it extremely difficult to negotiate the terms between the agency and/or the umbrella company, as the decision-maker at the end-client was so far removed from the contractual details.
For me, this is a major negative aspect of operating in this way, especially as I’m used to engaging on a business-to-business basis. (I have been well indoctrinated into the mantra of making sure the contract truly reflects what is being supplied and committed to!)
I also felt that the contract presented to me contained many inappropriate clauses for the engagement. But I will get on to that later…
Dealing with multiple parts of the supply chain
Having initially only dealt with a manager at the end-client, they then provided me with an agency that the end-client uses – one that I also ‘had to use.’
It’s quite normal that the end client chooses the ‘agent’; even when I am engaging business-to-business, large corporates prefer small companies like mine to go through some sort of ‘aggregator’ supplier – usually a recruitment agent or one of the big consultancy firms.
The agency in question
The agency was quite a big player and the interactions were generally good – they supplied me with a range of umbrella companies, but explained I was free to choose my own if I wished.
The manager at the end client, who was hiring me, warned me though, that all the contingent staff in his team (himself included!) used one particular umbrella company as it seemed to be the only one that managed to pay the correct amount, at the correct time. Several people had tried others, and had to come back to this particular one.
Not a ringing endorsement for the upcoming engagement.
Picking an umbrella company
All the umbrella companies I contacted were happy to explain the minutiae of how the ‘up front daily rate’ would be whittled away in various taxes, levies and ‘professional fees’.
There seemed very little difference in the final payment that I would receive, from one umbrella to the other.
When viewed against the taxes being deducted, these umbrella fees were not significant. The business model seems to be dependent on volume, and would need to be reliant on automation and uniformity across that volume to generate any profit.
It would be interesting to hear from any IPSE members who have identified significant cost variations? We’ve set up a form below for those with any insight on this.
However, there was a difference across the umbrellas as to their willingness to share their T&Cs before I formally agreed to join them. It’s in these T&Cs that I can see significant difference between umbrella companies.
Unexpected clauses for a so-called ‘employment’ contract
One clause that I was not expecting to find in an ‘employment contract’ was around providing adequate insurance for equipment issued to me.
No corporation I have worked with asks its employees to insure equipment that the company owns and directs its employees to use (or am I hopelessly out-of-date as to what it is like to be truly employed?).
I explained to the umbrella that I cannot provide adequate insurance for equipment I do not own.
Their response was: “We would ask that you check with the Client that the equipment is insured by them if you are concerned it is not”. I duly did of course.
The Agency, and the end client had no requirements for me to do this.
There was also a clause requiring me to ‘promote’ the umbrella company and its services.
I highlighted that I had no qualifications or experience in promoting 'umbrella company' services, and that my ‘best endeavours’ would amount to little more than a possible recommendation for their services. This, they did accept.
Similarly, there was also a clause requiring me (as an ‘employee’), to compensate the end client for any accidental loss or damage. Is this normal in employment contracts now?
A big take-away for me, from this whole ‘inside IR35’ experience so far, is the need for IPSE to make sure that umbrella companies draft contracts that accurately reflect the engagement.
I guess this will eat into their standardised approach for maximising profits – which in turn, will be reflected in their fees no doubt (eye-roll).
If you would be interested in anonymously sharing your own experience of self-employment as part of a future secret contractor blog, please email [email protected].
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