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How does an Umbrella company work?

Caunce O'Hara Umbrella Insurance

The advantages of working for an Umbrella company

Working as a contractor can have a myriad of benefits from providing new learning opportunities, to a varied range of work projects and clients, to a flexible lifestyle that enables a better work/life balance, to simply providing the contractor with a greater level of control.

Since the introduction of IR35 off-payroll reform the stability and security that contractors have previously enjoyed has been challenged, compelling many contractors to seek the protection that Umbrella companies offer.

Umbrella companies have become prevalent since the Government’s introduction of IR35 off-payroll reform, that tests to determine the employment status of a contractor and the contractor’s ability to take advantage of small business tax reliefs.

It is estimated that 14% of the UK’s professional contractors manage their businesses by working through an Umbrella company.

 

How does an Umbrella company work?

In simple terms, an Umbrella company acts as a contractor’s employer and is responsible for making sure that contractors are paid accurately and compliantly for the job they do for end clients, in most cases the contractor will be placed via a Recruitment Agency to the end client.

Umbrella companies issue invoices to their clients and is paid for the services the contractor provides. The Umbrella pays the contractor through pay-as-you-earn taxes (PAYE), which includes their income and any added benefits after offsetting some of their claimed expenses and fees where and when this is permissible.

The Umbrella is an employer, yet some contractors working for Umbrellas remain self-employed.

Most of the time, the Umbrella will be the employer of the individual worker engaged, but in some cases Umbrellas will engage the workers where permissible, as self-employed workers and/or as Construction Industry Scheme (CIS) workers.

Contractors working with an Umbrella company who are engaged as employees are offered a contract of employment which confirms, sick pay, maternity pay, pension auto-enrolment and all other employment rights that employees are entitled to.

How an Umbrella company works diagram

 

The most obvious benefits of being a contractor with an Umbrella company include:

  • Umbrellas take care of the contracts with the clients. The contractor simply does the job for the client and gets paid for it.
  • Umbrellas can advise on the contracts between the end clients and Recruitment Agencies. The contractor simply does the job for the client and gets paid for it
  • You cannot be caught inside IR35 working for an Umbrella company as their employee, IR35 does not apply to employees.

 

Caunce O’Hara have a proud history of providing insurance policies to Umbrella companies and their contractors.

If you would like a quote for Umbrella insurance and/or contractor insurance, please call 0333 321 1403.

 


Related Articles:

Umbrella and Payroll Business Insurance

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