Umbrella Companies operate as employers to people working on fixed contract projects or activities, sometimes through an employment agency. The term “Umbrella Company” has therefore been developed because the company consists of many different people brought together under one body i.e. as in under an Umbrella. The Umbrella Company brings together a number of independent contractors and brings them together under one legal entity, the Umbrella Company. This legal entity then provides a service as an employer by ensuring that the contractor is meeting legal requirements with their tax and accounting requirements-and some companies will also provide additional services, for example, insurance.
Advantages of umbrella companies
- An easy way of organizing contract work – the umbrella company can work very quickly to set up the services
- Umbrella companies are good for contractors on short term contracts or low hourly rates
- The umbrella company undertakes invoicing, administration, chases payment and processes the contractor’s payroll. That is PAYE and NI are calculated and deducted before payment is made, so reducing anxiety about tax payments
- Umbrella companies are good for those that are only temporarily undertaking contract work, or for those who are trying out work as a contractor
- Umbrella companies are easy to use as the only thing the contractor needs to do is to send the company time sheets and expense receipts