What is an Umbrella Company?
Putting it in simple words, the functional role of an umbrella company for contractors is that it acts as an employer for all the contractors under its folds and provides services of these contractors to the end clients. The end client makes even the payment for the job done by the contractors to the umbrella company, which then gives the contractor company their share.
Type of Umbrella Company available to contractors
It is the trend in the current market scenario that any field that appears lucrative to people becomes the choice of profession for most of them. Many people don’t even have the expertise or resources to deliver to their consumers what they promise to. At the same time, there are the usual fraudulent elements and scammers in every field of business. Keeping this in mind, the UK government has come up with PAYE a method of standardization of umbrella companies.
This standardizing certification is known as PAYE, and if you as a contractor are looking for an umbrella company, you should check whether they have this certificate with them. Try to adhere to the companies with this certificate.
What is the role of an umbrella company in any contract?
Umbrella companies have a proper procedure which involves a contract and to obtain the services of any contractor associated with an umbrella company. The end client is supposed to sign an agreement with the umbrella company instead of with the contractor himself. The contractor carries out the assignment, and the end client pays the umbrella company who gives the contractor their decided share of the profit. The umbrella does all the processing of payroll services, including processing timesheets and invoices and pays its employees a salary after deductions.
Any contract signed by an umbrella company includes the details of responsibilities like business expenses incurred by you as a contractor, which usually are borne by the umbrella company. The umbrella company is also responsible for processing all time sheets, invoices, and paying the employees their salary after making the dues deductions. However, the distribution of these responsibilities and other factors depend on the contract between the contractor and the umbrella company and between the end client and the umbrella company. As we know, such agreements nowadays are tailor-made according to the requirements of the client. Here we need to mention the SDC rules that need to have adhered. SDC here stands for Supervision, Direction, and Control of your client. If you try to play with these rules and get caught, then you cannot claim the cost of travel and subsistence. However, as mentioned, these things are tailor-made in each contract, and you as a contractor should always do your best to adhere to these rules.
How an umbrella company works in the UK?
If you are joining a UK based PAYE firm, then you need to take the following steps:
- First, secure a contract role, and the umbrella company will sign the contract with your end client
- At the same time, you will sign an agreement with the umbrella company
- Once you have completed the assignment, then the umbrella company will raise an invoice to the end client
- They will prepare your payroll on receiving the payment from the end client
- The rest is mentioned above, and the sum you get will depend on the terms agreed upon in the contract
As discussed above the benefits of being associated with an umbrella company are apparent. For one, you are saved all the paperwork and other hassles which you would have to do every time you take up an assignment, once you sign a yearly contract with an umbrella company. Then again the other factors like payroll etc. are also managed by the umbrella company. Of course, most contractors would like to keep the payment to their employees to themselves. However, you can choose to assign the responsibility of making payment to vendors that you hire to the umbrella company. This removal of many hassles leaves you free to take care of your core business hence enhances your quality of work and profitability.