Umbrella services vary from country to country. Generally speaking, umbrella services usually mean that the contractor rents space in an existing scheme, arrangement or company, rather than set up their own from scratch. This does, however, depend on which type of umbrella company service is being used.
Umbrella companies are typically used by individuals who are self-employed contractors or freelancers. Rather than setting up their own limited company, they have the option of using an umbrella company.
How do umbrella companies work?
An umbrella company typically employs contractors and freelancers directly. These individuals usually work on a number of different fixed-term contracts.
Once you secure a role, your selected umbrella company enters into a contract with your recruitment agency (or end client). You will also need to sign a contract with your umbrella. You also need to agree to the time spent on site working on projects and documents in timesheets, which you then pass on to your manager to sign.
In some cases, the contractor becomes an employee of the umbrella. In this case, the umbrella then acts as an intermediary between the contractor and their recruitment agency (or end client).
An umbrella company service usually manages the whole process from contract execution and contract invoicing through to payment of the contractor. Generally speaking, an umbrella company’s services are administrative and accountancy-based. They involve managing timesheets, handling payroll, calculating tax, processing VAT returns, invoicing the client, running software, collecting money and paying the contractor.
All umbrella companies must adhere to tax and employment laws. Often, insurance or adherence to certain compliance issues is a requirement of leading end users. A pre-approved umbrella will already have all compliance, insurance and other matters in place so that the contractor does not have to reinvent the wheel.
What are the benefits of joining an umbrella company?
Joining an umbrella is extremely advantageous and convenient if you are a contractor. It avoids the need and the hassle of setting up a limited company straight away. What’s more, if you know you’ll only be contracting on a short-term basis, you won’t need to go through the process of setting up a limited company only to have to dissolve it in the future.
As such, joining an umbrella company is particularly advantageous for short-term contracts. Through the umbrella scheme, the contractor avoids the expenses and delay of set up, and the expenses and complications of close down on contract termination.
Another key benefit of joining an umbrella company is that, as an employee of an umbrella company, you benefit from legal employee status. All of your paperwork is handled on your behalf, which is one of the simplest solutions for most contractors.
It also gives you the right to statutory employment benefits. This means that you are entitled to benefits such as maternity pay, paternity pay, statutory sick pay, and access to a workplace pension.
What’s more, the entire time that you’re employed by that umbrella company, you count as having one continuous employer and one continuous employment record – even if you switch between roles. This is advantageous as there are no unexpected tax bills. It’s also much easier in the event that you wish to secure mortgages or loans.
How to select an umbrella company
There are numerous umbrella companies to choose from. The umbrella you select will depend upon your unique circumstances and preferences.
If you are starting your first contract, the chances are that you have landed the role via a recruitment agency. Many agencies have recommended supplier relationships with leading umbrella schemes, which are usually recommended based on the quality of service offered to both the agency and the contractor. Whichever umbrella you select, it’s important to take the time to consider your all of options in order to find a solution that will work best for you.
Important aspects to consider include:
- The speed with which the umbrella processes payments
- The level of experience that their team possess
- Their level of responsiveness
- Their tax compliance
- Their fees
Ultimately, the right choice for you will depend upon your unique circumstances.
At Chesterfield, we are dedicated to providing seamless, pre-approved, straightforward and ready-to-use umbrellas. We have a knowledgeable, experienced and responsive team on hand to answer any questions or queries you may have.
If you need an umbrella company or are thinking of switching, please contact Chesterfield today for further information. Our expert consultants are happy to discuss your options and find the ideal choice for you.