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How does an umbrella company work?

Tuesday 18th September 2018

Many contractors just starting out in the industry come to Sterling unsure of how exactly an umbrella company operates, and their responsibilities when registered with one.

How does an umbrella company work?

Understanding how an umbrella company works is vital, as ultimately it will help you to better identify the ideal company to register with. If you are still unsure of how your umbrella company works for you, below we will explore the ten stages of the umbrella contractor process.

The umbrella process

  1. An umbrella company will enter a contract with a recruitment agency
  2. Contractors will register with their chosen umbrella company
  3. The client for whom a contractor is currently working with will sign agency timesheets, confirming the hours and days that a contractor has worked
  4. Contractors will send their signed timesheets to both the agency and umbrella company, along with any relevant expenses that a contractor has acquired during that particular time period
  5. The umbrella company will invoice the recruitment agency based on submitted timesheets and expenses
  6. The recruitment agency will then invoice the client of the contractor for works carried out and expenses incurred
  7. The contractor’s client will pay the agency directly
  8. The agency will then pay the umbrella company, the date of which will be determined by the agencies payment run
  9. Following receipt of these funds, the umbrella company will deduct all necessary charges, including tax, NI and their margin. Contractors will receive details of their payment on their payslip
  10. The umbrella company will make payment to the contractor

For contractors, the benefits of working through an umbrella company are vast. Firstly, contractors will find that there is significantly reduced administration time involved, as the umbrella company takes care of the vast majority of requirements, such as relevant tax and NI deductions. As a result, contractors are not only free to focus on their core contracting responsibilities, but are also compliant with HMRC regulations.

Furthermore, one of the top advantages of working with an umbrella company that countless contractors have found are the benefits and security that go hand in hand with being an ‘employee’. This ultimately means that a contractor is entitled to holiday pay, statutory sick pay, insurances and much more, whilst still maintaining the flexibility that contracting offers. In addition to this, due to the fact that a contractor is in continuous employment with an umbrella company, their credit status improves as a result.

Sterling Group endeavours to ensure that the umbrella process is seamless, so that contractors are paid accurately, on time and thoroughly understand each and every aspect of an umbrella company.

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