Member Article

What exactly is an umbrella company?

The number of contract workers in the UK is growing year on year as businesses seek to engage a more flexible workforce. As such, businesses are now frequently hearing the term ‘umbrella company’ crop up in conversations when negotiating contracts. It can be confusing if you’re unsure of what they are, what they do, and how they can work with your business.

What is an umbrella company?

An umbrella company is an organisation that acts as an employer to independent contractors or agencies who are working under a fixed term contract. Umbrella companies tend to be used by those on short-term contracts in between permanent roles or by those long-term contractors who do not want the added workload and paperwork of running their own Limited Company.

How do they work?

In its simplest terms, a pay as you earn (PAYE) umbrella company will process timesheets and expenses on behalf of the individual and issue an invoice to the client on behalf of the contractor. When payment of the invoice is made, it will typically pay the contractor using through a standard PAYE model, having first processed all allowable expenses on behalf of the contractor. These expenses could include travel, subsistence, training or accommodation costs incurred whilst completing the assignment.

Why would people use an umbrella company?

Individual contractors are an umbrella companies’ primary audience. Contractors may want to focus all their efforts and energies on completing their current contract well, or identifying future contract opportunities rather than in the drudgery of processing timesheets, expenses or invoicing so choosing to work with a third party organisation can sometimes be a smart move.

How do they work with businesses?

While umbrella companies are largely used by contractors, they do also offer their services to recruitment agencies and in-house hirers. While not all umbrella companies are as ethical as others, the best umbrella companies will work in partnership with organisations to ensure contractors are paid fairly, and on time. For the business, the advantages of working with an umbrella company means that they no longer need to spend their own time facilitating the administration and compliance that come with a flexible workforce, meaning they can focus their efforts elsewhere.

As the contract market in the UK grows, it’s likely that there will be an occasion where you run into an umbrella company on behalf of a contractor, or if you’re considering using one to help with the volume of contract workers in your organisation. It’s important to remain vigilant with all tax and payroll issues and an umbrella company can be a great way to help establish your businesses as a fair and vigilant employer to contract staff.

This was posted in Bdaily's Members' News section by Paraplus .