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An Umbrella Company is effectively a business acting for short-term contract workers as an employer for payroll, and in some cases, long-term contract workers.

The term Umbrella Company is used in the UK because of the way that this business generally acts as an employer on behalf of several or more contract workers. The contract worker effectively will be paid via the Umbrella Company using PAYE.

Umbrella Companies became more common in the UK following the government’s introduction of the IR35 regulation, the purpose of IR35 legislation is to tackle disguised employment.

UK Umbrella Company statistics

– Approximately 4 Million temporary workers in the UK

– 1.56 Million temporary workers classified as management or senior roles

– 14% of UK professional contractors use Umbrella Companies

UK Umbrella Company structures

In the same way as an employer acts for an employee, an Umbrella Company will process any timesheets for hours worked to then issue an invoice to the client for payment. The Umbrella Company, therefore, holds the same responsibilities as an employer, which also means that they should have a contract of employment for all contract workers under that business.

As part of their payroll services, the umbrella company will provide contractual rights such as maternity pay, sick pay, and employment protection. The Umbrella Company will provide payroll services as its main function for the contract worker, which it will bill to the agency (if applicable) for all work undertaken and time worked.

The contract worker is classed as the employee of the Umbrella Company who completes the actual work as part of their short-term or long-term contract. The contractor will then submit their timesheet for the work completed to the Umbrella Company.

UK Umbrella Company Charges

Any Umbrella Company will offer the same payroll schemes using the UK’s standard PAYE calculations to be able to work out how much each contract worker should be paying in tax and National Insurance. The main differences between each Umbrella Company in the UK will be the variances % or margins that they will charge and any benefit schemes that they operate for their contract workers.

An Umbrella Company in the UK will generally use a margin or percentage-based charging structure, which will be deducted from the contract workers pay to collect its fees. Umbrella Companies in the UK will generally work on the basis of a fixed fee or set amount, which will be deducted from the contract workers pay on a weekly or monthly basis. Some Umbrella Companies operating in mainland Europe will work on a percentage-based amount depending on the country that they operate in.

If you need some help or guidance on how Umbrella Company schemes work and how that could benefit you then you should speak to one of our team of Gorilla Umbrella Company experts to find out more. We offer a comprehensive range of accountancy services to support you and your business so that you can concentrate on the important aspects of contract working.