5 reasons why mutual is the future

With all the changes introduced in April 2016 (and those pending in 2017 for limited company contractors) life for many is starting to look very bleak. With the ability to claim expenses curtailed earlier this year and tighter control measures in 2017 for those with a limited company, the contracting world is going through some major political, social and commercial alterations that will change the landscape (as well as the money trickling into contractors’ pockets!).

Contractors will now be looking at ways and options to retain more of the money, without picking a battle with HMRC.

A growing number of contractors are starting to engage with what is known as a mutual umbrella. Delivering the best of both worlds (limited and umbrella) the idea that workers can join and create a collaborative platform is fast becoming a real-world option. The concept is one that has been around since 1939 and has similar financial benefits to that of a co-operative, together with the ‘strength in numbers’ principles that underpin a union.

Here we explain 5 reasons why being in a mutual umbrella is so much better than a standard umbrella and is becoming an increasingly significant alternative to going down the limited route.

1. Collaborative working…low fees, higher bonuses for everyone

The way a mutual umbrella works is similar in many ways to that of a standard umbrella works, but it treats workers as an asset, rather than numbers ‘on the books’. A mutual umbrella shares and distributes both profit and passes on to employees its reduced overheads.

Standard umbrellas require huge numbers of contractors just to service the costs of participating in agency preferred supplier list (PSL) arrangements, and for covering their own top heavy management costs.

Ever wondered why umbrellas charge such high weekly fees? Now you know.

2. Less risk than limited, financially better than umbrella

With all the changes coming in for PSC’s (see our other articles on this theme) having your own limited company in the new year will be increasingly stressful due to a cocktail of new IR35, time-consuming quarterly tax returns and higher accounting fees (as your accountant tries to get to grips with all the changes).

The umbrella payroll industry has historically been saturated with two types of company – large, high volume umbrella companies that have PSL agreements with numerous agencies, and off-shore based contractor loan providers (the ones that pay out 80% plus) who’ll leave you with a tax hangover.

With a mutual umbrella, you tend to get a more valuable pay package compared to standard umbrella, much less risk than with a contractor loan, and less hassle when compared to running your own limited company.

3. Financially more stable

Ever tried getting a mortgage or lifestyle loan when in an umbrella? Contractors are scrutinised more when it comes to employment history. There are specialist contractor mortgages and loan companies out there but you’ll tend to find they have significantly higher APR and interest rates (due to the perceived risk they are taking).

With a mutual umbrella, you belong to a company. You are employed by that mutual and are considered a permanent employee, not a temp. This gives you a better-negotiating position with lenders.

4. Have your say

Most umbrella companies run autonomously and decisions are made by the top dog. In these large, clunky, high volume companies, the managing director makes the decision which filters down through to the floor and gets implemented. In majority of scenarios, it’s to make more money for the business.
In a mutual umbrella, the employee (i.e. contractor) is king. Whatever information, feedback and improvements are provided in a mutual umbrella benefits everyone. That includes the contractor employee. As a stakeholder in the company, all benefits and cost savings are passed on to the contractor.

5. Preferred model used in the public sector

Surprisingly, the mutual employer is a model that the government don’t see as a scam or ‘loophole’, indeed mutuals are increasingly popular in the public healthcare sector. Almost as old as modern industry itself, there are plenty of protections for those that choose to collaborate without stepping on toes at HMRC.

Mutual Umbrella – pay of a limited, freedom of an umbrella, strength of a union

Whichever way you look at it; the mutual umbrella model provides an option to many in the contracting world. It may not be the solution for some, but for many it will act as a shining light in an industry that is heavily saturated with high fees, risky contractor loans and an increasingly limiting (pun intended) limited company option.

What would a contractor mutual be able to offer you? Call us or drop us an email to find out.