Umbrella Company

What is an Umbrella Company?

An umbrella company is an professional employment organisation that engages contractors with a view to carry out multiple assignments at a series of temporary workplaces for various recruitment firms or end-hirers.

When you join, you become an employee of the umbrella company and receive all the statutory rights that go along with normal employment.

A compliant umbrella employment contract will always contain a guaranteed minimum hours of work per annum, which means a mutual obligation to work together to the benefit of each other.

The umbrella company enters into a contract with an agency or an end hirer for your services. You submit your authorised timesheets to the umbrella company who will in turn invoice the agency or end hirer for the work that you have carried out.

The agency or end hirer pays the umbrella company what is known as the contract rate or assignment rate. The contract rate covers the charges for your services as well as the costs related to your employment, such as employer’s NIC, holiday pay and other statutory costs.

The contract rate paid to the umbrella company is therefore higher than you would expect to get if you were being paid by the agency directly to account for the additional employment costs.

The umbrella company will pay you a minimum of National Minimum/Living Wage for the hours you have worked. Dependent upon the agreed contract rate with the agency, any amount over and above the NMW/NLW will be paid to you as a combination of any allowable business expenses and bonus related pay (less any statutory deductions for PAYE and National Insurance).

You remain an employee of the Umbrella Company when you start a new assignment with a new agency or end client and between assignments.

Why choose the Umbrella Company option?

The umbrella company provides you with legal status of an employee and handles the legal, insurance, administration, payroll and HR on your behalf. It’s a simple solution, with no unplanned tax bills and a straightforward process for claiming any allowable business expenses.

As an employee of the Umbrella Company, you will have access to a guaranteed number of hours work per annum and also be entitled to other statutory rights, such as holiday pay, sick pay, a state pension and maternity/paternity pay.

Using a reputable and compliant Umbrella Company provides a safe and compliant alternative to working directly through your agency.

Why do Agencies usually offer a higher rate if I choose the Umbrella option?

The umbrella company signs a contract with your agency (or end client when no agency is involved).

The agency pays the umbrella company a rate – known as the assignment or contract rate. This amount covers the work you have carried out, plus the costs related to your employment, such as employer’s NIC, holiday pay and other statutory costs.

This rate should always be higher than you would expect to get if you were paid directly by the agency/end client, to allow for these additional costs.

The agency pays the umbrella company the same contract rate they offer to a contractor working through their own limited company.

What administration is involved with the Umbrella option?

Aside from normal employer/employee checks during on-boarding, such as verifying your personal details and Right to Work, you will have to submit your timesheets and any allowable business expenses with supporting evidence to the umbrella company within a certain time frame for processing. These are usually uploaded via an online portal.

The umbrella company usually takes over from this point and should provide you with same day payments, a full breakdown of your pay and an SMS to notify you that you’ve been paid.

What expenses can I claim?

Expenses must be ‘wholly, exclusively, and necessarily’ incurred in the performance of your employment duties. They must be genuinely incurred, reasonable and allowable under HMRC’s rules.

Examples of allowable business expenses include site to site mileage and work related training.

You should refer to the Umbrella Company’s expenses policy for guidance.

Is the Umbrella Company option right for me?

The Umbrella PAYE option is most suited to you if you:

  • intend to contract for the short to medium term
  • want to trial contracting before making a decision to contract longer term
  • want the flexibility of the contracting with the security and benefits of regular employment
  • earn a rate of pay that can make working through an Umbrella preferable
  • prefer a lower level of administration and responsibility than running your own Limited Company
  • work on contracts that are inside IR35 or want to avoid the IR35 debate
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