What is an Umbrella Company?

What is an Umbrella Company?

An umbrella company is an employer of contractors who complete numerous different assignments at various locations for recruitment agencies and/or end hirers. The umbrella company enters an employment contact with the worker, and a service contract with the agency.

This gives the worker freedom to undertake a series of temporary assignments via a variety of agencies/hirers whilst having continuity of employment with all statutory rights and benefits.

Benefits to an Agency of using an Umbrella company

A fully compliant umbrella employer manages the commercial, employment, taxation, and statutory risks associated with the use of temporary workers for the supply chain. This minimises the overheads, employment risk and administrative burden of managing temporary workers in-house. It saves you time and money.

Benefits to the Contractor of using an Umbrella company

  • Employment rights, including all statutory rights and benefits such as holiday pay, maternity,
  • Employment history whilst working on a contingent, multi-location basis (notably to support access
    to finance, housing/mortgages, etc.)
  • Many workers will perform multiple assignments during a week or a month. Umbrellas consolidate their workers earnings and ensure appropriate taxes are paid. This avoids multiple employments.
  • Peace of mind that tax is paid appropriately, with no need to submit an annual self-assessment return to HMRC

How is Pay calculated

The umbrella company receives assignment income paid by the agency for the work undertaken. This is known as the assignment rate. Like any employer, the umbrella must cover employment costs including employer’s national insurance, holiday pay and pension contributions. These employment costs are deducted from the assignment income. Umbrellas also retain a margin to cover their costs for the services they provide. This is also deducted from the assignment income, and the balance is the workers’ gross pay.