An umbrella company is a separate business entity that serves as the employer for temporary workers or contractors engaged in fixed-term contracts.
How It Works:
1.The temporary worker or contractor becomes an employee of the umbrella company.
2.Gross payments are transferred to the umbrella company to compensate the worker or contractor for their completed work.
3.The umbrella company processes the payments, deducting applicable fees, employer and employee National Insurance (NI) contributions, taxes, and the Apprenticeship Levy before paying the worker their net salary.
4.Each quarter, the agency must report all payments related to the supply of staff (where employment taxes and NI aren’t deducted at the source) to HMRC.
Pros and Cons of Using an Umbrella Company
Benefits for Agencies:
•Employment Rights Delegated: The worker becomes an employee of the umbrella company, reducing the agency’s responsibility.
•Insurance Coverage: Workers are covered under the umbrella company’s insurance policies.
•Cost Efficiency: Minimises administration related to payroll, pensions, insurances, and compliance.
•IR35 Compliance: Ensures workers meet regulations regarding off-payroll working rules.
•Support Services: Access to account management, regulatory advice, and briefings.
Challenges for Agencies:
•Unregulated Industry: It’s essential to only work with FCSA-accredited suppliers for reliability.
•Third-Party Involvement: Handling relationships with external umbrella companies can add complexity.
•Sector-Specific Compliance Risks: Industries like construction, education, or low-income roles may face additional scrutiny.
•Complex Payslips: Workers might find payslips difficult to understand.
•Expense Confusion: Potential for misunderstanding taxable expenses.
If you are looking to add a placement to Raise with an Umbrella engagement, you can select the relevant Umbrella during the process of adding the placement to the platform. Please note that Raise do not notify the Umbrella of the placement, and this is the responsibility of the Agency or Contractor.
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