Contracting is becoming an increasingly popular way of working for a number of reasons. Many people assume this is primarily because more opportunities are available at a time when employers are less certain of economic conditions and so unwilling to take on full-time salaried workers. However, while this may be true and there are certainly a wealth of options open to contractors, it is the freedom and flexibility afforded by this career path that is most often cited as its major benefit.
This is especially true for umbrella contractors or limited company contractors who utilise the services of an accountancy service provider, as these organisations take away much of the administrative burden that accompanies this way of working.
Becoming a limited company contractor is not an option for all workers operating on a freelance basis, as the IR35 regulations stipulates among other things that only those who are able to determine when, where and how they work can consider to operate in this manner.
In addition, the financial advantage of being able to legally minimise tax and National Insurance burdens is often overshadowed by the amount of paperwork limited company contractors must fill out and the detailed accounts they are required to keep.
Limited company contractors must also ensure they budget effectively, as they will not receive any income when they take holidays, suffer from injuries or illnesses that prevent them from working or need to go on maternity leave.
Do all umbrella contractors qualify for maternity pay?
Statutory maternity pay (SMP) is payable to almost all workers who have been operating under an umbrella company for a continuous period of at least 26 weeks before the 15th week of the pregnancy.
To qualify, a contractor’s average weekly earnings (AWE) must be in line with the lower earnings limit, which in the 2013/14 tax year is £109 per week. This ensures the minimum amount of National Insurance contributions have been made to entitle the worker to SMP.
In order to ensure there is no delay in payments starting, the contractor should make sure to provide the umbrella company with a MAT B1 certificate at least 28 days before they would like SMP to begin. These documents can be issued by doctors or midwives and act as confirmation of the pregnancy, though other forms of evidence may be accepted.
Contractors who are not eligible to claim SMP should contact their umbrella company in order to receive an SMP1 form, which will help them claim maternity allowance. This form should be filled out and taken to the nearest Job Centre Plus or social security office, where the entitlement will then be assessed.
How much do contractors receive in SMP?
In 2013/14, the SMP rate is equivalent to 90 per cent of a contractor’s AWE for the first six weeks and then the same for the following 33 weeks or a standard rate of £136.78 per week, whichever is lowest.
While contractors will receive payment for a maximum of 39 weeks, they are permitted to take up to 52 weeks in leave.
When do the payments begin?
Those who are entitled to SMP can request that it is paid any time after the 11th week of the pregnancy. For this to happen, written notice must be provided to the umbrella company 28 days before the payments are desired, but an email will usually suffice.