A number of independent contractors have in the last few years moved again from Umbrella Companies to Employee Benefit Trusts which offer many further advantages .
Employee Benefit Trusts are discretionary trusts set up by some employers for the benefit of all their employees. An Employee Benefit Trust for contractors is therefore a discretionary trust set up specifically with portfolio workers in mind, who will simply become ‘skilled employees’ of their appointed company who are providing the EBT and who are then in a position to be a part of their EBT’s accountancy solution. The company running the EBT will pay the contractor a salary (normally something like minimum wage), from which NIC and PAYE are deducted. Thereafter, the remainder of the wages are paid into the Employee Benefit Trust. After this, the Trust makes a loan to the contractor (interest free) for the balance of the pay owed.
So which should you choose ? In essence, an Employee Benefit Trust offers a great number of the advantages of umbrella companies (lack of invoices, paperwork or director’s responsibilities and not affected by the MSC legislation) with few if any, of the problems. More importantly , Employee Benefit Trusts, unlike umbrella companies, require no timesheet or expenses submissions. Better still , they also offer increased job-security for their contractors who are granted full employment rights and benefits.
Lastly , and probably of most interest to contractors, EBT’s are able to offer a far higher gross to net income ratio than umbrella companies. An umbrella company will normally offer around 65% gross to net whereas an EBT can offer a huge return on contract of up to 85%. For this reason many contractors are now joining an Employee Benefit Trust to maximise their earnings and to free up time to concentrate more on contracting and less on admin .