Currently in the UK, there are around 700,000 employees that are operating through around 500 umbrella companies. This article will act as your guide, providing all of the information you need to know about umbrella companies.
What is an umbrella company?
An umbrella company is a business that is often used by recruitment agencies to pay temporary workers. Generally, the umbrella company employs you and pays your wages through the PAYE scheme. Therefore, the umbrella company will hire and pay you, but the recruitment agency will be the ones to find you temporary work.
Although you are employed by the umbrella company, you will work for one of the recruitment agencies clients. Temporary work, also known as seasonal work, is where employers will contract a job for a limited time period. There can be room for progression in some instances, but usually the work isn't long-term.
Your employee rights under an umbrella company
As an employee under an umbrella company, your employee rights are the same as all workers. All employees are workers, but an employee has extra employment rights and responsibilities that do not apply to workers who are not employees.
These are all of the rights:
National Minimum Wage
Protection against unlawful reductions from wages
The statutory minimum level of paid holiday
The statutory minimum length of rest breaks
To work no more than 48 hours on average per week or to opt out of this right if they choose to
Protection against unlawful discrimination
Fair treatment in the workplace
How do you get paid?
When you send your timesheet to a recruitment agency, it will charge the client. The recruitment agency will pay the umbrella company the initial agreed rate- making the umbrella company liable for ensuring you get paid as they are your employer.
The umbrella company will also take care of most of the administration tasks surrounding invoices and accounting. The pay element of being an umbrella employee is similar to a regular employee as you are paid through a Pay As You Earn (PAYE) scheme and also receive pay slips.
Do you pay more tax with an umbrella company?
Even though you’re a contractor, HMRC considers you a permanent UK employee when you work under an umbrella company.
You’ll be given a tax code and pay a basic, higher or additional rate based on your income – just as you would if you were employed by a company full or part time.
Advantages of an Umbrella Company:
Less administration
No commitment
Keep employee benefits
Quick and easy sign-up
Less stress surrounding IR35
Disadvantages of an Umbrella Company:
Fewer Tax Breaks
In some circumstances, they can act illegitimately
Umbrella PAYE calculator
There are calculators designed to provide you with fair and accurate snapshots of your earnings and how much you should be taking home. You can find these calculators online for free.
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