How does an umbrella company work?
An umbrella company is a service provider that acts as an employer for contractors and freelancers. When you work with an umbrella company, you become an employee of the company, and they handle your payroll and employment administration on your behalf.
Here's how it works:
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You find work as a contractor or freelancer with a client.
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Instead of invoicing the client directly, you sign a contract with an umbrella company.
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You submit your timesheets to the umbrella company, and they invoice the client for the work you've done.
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The umbrella company deducts tax, National Insurance contributions, and their fee from the payment received from the client.
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The umbrella company then pays you a salary, along with any statutory employment benefits, such as holiday pay, sick pay, and pension contribution
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The umbrella company also handles all the administrative tasks related to employment, such as filing your taxes and maintaining your employment records.
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By working with an umbrella company, you can benefit from the advantages of self-employment, such as flexible working hours and the ability to take on multiple clients, without the administrative burdens of being self-employed. You also have the added security of being an employee, with the protection of employment rights and benefits.
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In summary, an umbrella company acts as an intermediary between contractors and clients, handling all the administrative tasks related to employment on behalf of the contractor. By working with an umbrella company, you can focus on your work and leave the payroll and employment administration to the experts.
