All You Need to Know about Umbrella Company

Umbrella Company

Do you have questions about working with an umbrella company? Are you perhaps looking for an explanation about umbrella payroll companies? Learn about everything related to umbrella companies, including the benefits they deliver to businesses. Just continue reading!

Meaning of an umbrella company

The thing about umbrella companies is that the term umbrella metaphorically describes the type of overarching structure that these companies provide. Payroll services are provided by umbrella companies to recruitment agencies as well as their contractors.

Umbrella companies are becoming increasingly popular in the UK for various reasons. Simply put, when you partner with an umbrella company, whether you’re the contractor side or the agency side, it will be a beneficial partnership.

Functions of an umbrella company

  1. Employing agency workers for fixed-term contractual work.
  2. For recruitment agencies, the workers are basically contractors that take on one or several contracts through the agency.
  3. Umbrella companies are legal employers and are thus responsible for paying contractors that have been employed by the company.
  4. Umbrella companies have the responsibility of deducting certain items through the PAYE system, from payslips, to ensure tax compliance.
  5. Invoice generation and timesheet processing are some of the other responsibilities of any London Based Accounting Firm.

Simply put, umbrella payroll companies function like a middleman between contractors and agencies to alleviate the stress on both ends while ensuring complete compliance with all relevant legislation.

Benefits of an umbrella company for recruitment agencies

The responsibility of recruiting all contractors of the agency is upon the umbrella company as it is the sole employer.

  • As the sole employer, the recruitment agency is free from the liability of making payments to the contractors. This ends up freeing up valuable resources for the recruitment agency.
  • Partnering with an umbrella company makes the recruitment agency more appealing to potential contractors. This happens because partnering with a London Based Accounting Firm enables such agencies to offer attractive benefits to the contractors. These benefits may include pension contributions, maternity pay, sick pay, etc.

Benefits of an umbrella company for contractors

  • Working with an umbrella company is beneficial for contractors concerning reduced administrative burden and obligations.
  • The overall contracting experience is also highly streamlined.
  • It is easier to strike a work-life balance with an umbrella company through outsourcing compliance, paperwork management, and deductions.
  • One of the shining benefits that umbrella companies offer to contractors is complete tax compliance.

How do umbrella companies ensure tax compliance?

  • For the contractor

From the contractor’s perspective, the partnership between an umbrella company and a recruitment agency enables contractors to use their tax code efficiently. Contractors receive a consolidated paycheck every period along with a P-60 annually, instead of paychecks from every company that they contract themselves to.

Umbrella companies ensure tax compliance by making relevant deductions from the gross pay of every contractor. These deductions are then paid on behalf of the contractor by the umbrella company through HMRC’s PAYE scheme. These deductions include student loan repayments, insurance contributions, pension contributions, and so on.

  • For the recruitment agency

The organizational burden for recruitment agencies is significantly reduced when they partner with umbrella companies. Here’s how:

  • Recruitment agencies do not have to spend their valuable time staying updated with the ever-changing UK tax laws.
  • With an umbrella company in charge of the payroll services, even if the in-house payroll department overlooks something, it is unlikely to attract HMRC’s attention.
  • A partnership with an umbrella company may also enable recruitment agencies to not even have an in-house payroll team. The internal resources of the agency can thus be utilized for fulfilling other business goals.

Does your agency need an umbrella company?

Now that you have a comprehensive idea about umbrella payroll companies, you may be wondering whether your UK-based business requires an umbrella company. Here are some signs that your business might need to partner with such a company:

  • The absence of an in-house payroll department or team: If you don’t have one, it’s best to not spend time recruiting a team. Just partner with a payroll service company.
  • Freelancers and short-term contractors constitute your agency: It’s better to let an umbrella company be in charge of figuring out the different hours and rates of every freelancer and handling the payrolls.
  • The need to save costs and time on administration: Growing and expanding your UK-based business is more profitable than spending money and time on administrative work.

Apart from this, if you struggle with tax compliance, managing expenses, want to offer various employee benefits to increase the appeal of your agency, or desire to offer greater security to contractors, consider partnering with an umbrella company.

At CoreAdviz, we have a qualified accounting team, which can help you in dealing with National Insurance. We will help you throughout the process of making your insurance contribution, and also handling other tax matters.