What is an Umbrella Company?

Umbrella companies are becoming increasingly popular with contractors and freelancers throughout the UK. However, what is an umbrella company? We’ll explain what an umbrella company is, how they work and why you may be perfectly suited to one for your temporary working assignments.

An umbrella company is a business who will employee workers who are engaging with assignments through a recruitment agency. The idea is that when a recruitment company places a temporary worker in a role, an umbrella company will take care of the workers payroll (PAYE). This helps agencies reduce the hassle, extra work and administration of putting the workers on their own internal payroll.

Contractors who use an umbrella company are able to take advantage of Employee Benefits and free insurance cover (Professional Indemnity, Employer’s Liability and Public Liability).

Despite sounding complex, umbrella companies are actually pretty straightforward. Here is how a typical umbrella company works in 10 steps:

1. The contractor gets an assignment via a recruitment agency and is asked to contact an umbrella company on the agency’s Preferred Supplier List (PSL).
2. The recruitment agency enters into an agreement with the umbrella and both sign a contract.
3. The contractor is required to complete a form and officially register with umbrella.
4. The contractors will be required to complete timesheets and get them signed.
5. The contractor will then need to send the signed timesheet to their recruitment agency.
6. The contract will also need to send the signed timesheet to their umbrella company.
7. The umbrella company will invoice the contractor’s recruitment agency in accordance to the timesheet they have been sent.
8. The agency will pay the umbrella company.
9. The umbrella company will receive funds and process the contractors pay. They will make deductions for tax, National Insurance Contributions (NICs), Apprenticeship Levy, and finally, Holiday Pay, Pension (if applicable), student loan (if applicable) and their margin.
10. The contractor will receive their pay with a payslip.

For a more in-depth explanation on how umbrella companies work, please visit our How Does it Work page.

To put it simply, umbrella companies pay contractors and freelancers in a very similar way to full time employees (PAYE). This means that if you approach 10 compliant umbrella companies for a take home pay calculation, they should all offer you pretty much the same amount. The only thing that varies amongst umbrella companies is the margin they charge to run your payroll and to cover the administrative costs. Typically, expect to pay between £20 and £25 per week for your payroll.

Umbrella Company UK is more than just an umbrella company. We make it our priority to ensure everyone who uses our service receives a reliable and efficient payroll service whilst being able to take advantage of some of the little extras we include at no extra cost.

When you register with us, you’ll be able to benefit from our very competitive margin, as well as free £25 million insurance cover, Employee Benefits (Sick Pay, Holiday Pay, etc.), Same Day Faster Payments, and more!

Please contact us using the form on this page or give our friendly team a call on 01707 669023. If you are already using an umbrella company, switching to us is really straightforward.