How Does Umbrella Company Work: All Specifics Explained
Sometimes, businesses can only grow further by gaining sustainable control over accounting and hiring specifics for their new employees. Getting them appropriately done will affect your business shortly and unavoidably. Here, Acvian discovers everything you have to know regarding umbrella company, and how to use their potential.
What does an umbrella company mean?
Umbrella companies are similar to Professional and EOR services. They are intermediaries between you and your employee. They act as a buffer for you so that you don’t have to worry about the administrative and financial responsibilities of being an employer/contractor.
Umbrella service pays employees as if they were full-time workers. This means that taxes and insurance contributions, for instance, get deducted by the umbrella company on the employers and workers behalf. It’s a process that serves to simplify their tasks and duties. So no one from them has to file things like tax returns.
Such companies are commercial and legal arrangements used to employ or contract a workforce. The best way to understand these arrangements is by setting out the individuals or parties involved and their roles.
The main participants in an umbrella company arrangement are:
- Client: The client is usually an organization that requires the services of workers for a short period or indefinite period.
- Employee: These are people who agree to provide services under an employment contract with either a client or contractor and are remunerated accordingly.
- The umbrella company (also known as an “umbrella labor hire agency”): This is an independent entity that facilitates the provision of workers between clients/contractors as intermediaries between them.
How does an umbrella company work?
An umbrella company is an employment agency that takes care of all your financial and legal matters while working globally.
Here are the crucial and most common steps that follows while collaborating with EOR services:
- The business hires the Umbrella company / EOR provider. Client (usually a company) signs a contract for services provision with an umbrella company.
- After signing a contract we issue an employment contract and onboard employee on your behalf and invoice you his/her salary.
- The business pays a monthly fee to the umbrella company for this service.
- Umbrella company pays all the taxes and ensures that all necessary legal compliance is met by their clients for the employees.
- The business benefits from the expertise and efficiency of having employees without worrying about any additional HR obligations.
An umbrella company will be responsible for the payroll calculation and salary pay itself They will collect taxes and submit them to the relevant authorities. Your net take-home pay will be calculated by deducting personal income tax, any pre-agreed fee/margin, and pension contributions (if applicable). You will also be reimbursed for any pre-agreed business expenses that you have incurred.
Umbrellas are a great option if you’re looking to bring a foreign worker into your company.
These companies can employ expats in any country and make work and residence permits for them. They also help with the administrative aspects of hiring employees, such as getting visas, setting up payroll, and serving as a liaison between the employee and their new employer. The global hiring raised up to 145% this year, and will only continue to increase. It’s a shame to miss out the perspective.
Umbrella companies can be especially useful for small businesses that want to hire someone from abroad but aren’t sure how to go about it.
How much does an umbrella company charge?
How an umbrella company charges you is slightly different from how other businesses charge.
This is where you may have come across the term “umbrella margin,” which covers the administration costs such as running payroll, insurance, plus any other operational overheads.
Acvian, for example, charges clients on the following basis:
- Monthly administration fee.
- Onboarding fee one time payment.
- Monthly deposit as equal to gross salary and employer portion of the taxes and social contributions.
Are there hidden fees?
Hidden fees are one of the crucial things to look out for when choosing an umbrella company.
While margins should be umbrella companies’ primary profit sources, some also have extra charges that could significantly dent your take-home pay. In particular, watch out for the following:
Sign up fees
You have to pay this fee to join the umbrella company. It might seem small at first glance, but if you’re working through multiple umbrella companies and paying sign-up fees each time, it can add up quickly!
These will apply if you make a termination or switch to other services. It’s best to avoid these by finding a reliable umbrella company that won’t charge unnecessary fees or makes your life difficult when it comes time for you to move on.
Surcharges for insurance, expense processing, and other administrative tasks
The umbrella company also offers a range of optional cover options, including employers’ liability insurance, professional indemnity insurance, and public liability insurance.
Employers’ liability insurance is a legal requirement for an umbrella company and covers your employees if they’re injured while on a client’s premises. Professional indemnity insurance protects the umbrella company against negligence claims by its employees. Public liability insurance covers you against claims by third parties who may have been injured through contact with your employees.
While these aren’t legal requirements for an umbrella company, most end-clients will want proof that their chosen provider has taken out these policies before allowing you to start work for them.
So what are the reasons to use an umbrella company?
- You may need to outsource your payroll services to a specialist if you don’t have an internal payroll team.
- If you have short-term contractors or freelancers on the books, setting up and managing their expenses can be tricky. It’s best to find a specialist who can help you with this.
- If you’re struggling to keep on top of regulatory obligations, it may be time to get in touch with a specialist who can help streamline this process for you.
- Outsourcing is worth considering if you want to save time and costs on administration.
- If you’d like to offer employment benefits to your contractors or freelancers, an umbrella service provider can take care of this.
Are you asking yourself whether your company needs umbrella payroll services? Ask first these questions: Do I have short-term contractors and freelancers on my books? Do I struggle to keep on top of regulatory obligations? Do I want to save time and costs on administration? Would I like to offer employee benefits? Positive thoughts on them should tell you that you may need such services.
How to choose exemplary umbrella service?
The best umbrella companies are those that can process payments quickly and efficiently. How? By ensuring that all their contractors have been paid on time and having a plan in place for any delays. A reliable umbrella company will have an established process for handling payments and will be able to provide testimonials from satisfied customers about the ease of payment.
Price is important, but it’s not all when considering a proper umbrella service. You worked pretty hard for your income. And it’s rightful of you to try getting the best for the lowest price.
That said, however, don’t make it all about price.
You will deal with your umbrella company on a regular basis”possibly several times a week or even daily. Your relationship with them can make contracting a great experience or a lousy one. So, while shopping around is good, distinguish cheap from good.
A respected service will treat you as best as possible, make getting paid smooth and hassle-free, and have your back if things go amiss.
Ideally they should also be able to provide references from clients in similar industries that they have worked with in the past who can vouch for their quality of service.
So why Acvian?
Acvian is a global professional agency in the employment industry. We are a trusted provider of EOR and PEO services, as well as an all-inclusive human resources solution. We also serve as an umbrella company.
Our team offers professional and highly personalized service to our clients, who range from any size. You can see their reviews here. Our team is made up of enthusiastic, digital and creative specialists who will help you expand your business globally with minimum red tape and financial risks.
We offer our clients a wide range of employment agency services including:
- Hiring employees on behalf of your company.
- Resourcing staff for stable and short-term projects.
- Providing support for all hiring, staffing needs or contract work.
- Relocation assistance.