Author: BORAN SUEKINCI
Publication date: 25.07.2024
Working with umbrella companies is something to consider for people interested in contract work both as an employer and a contractor. They can act as the middleman between companies and contractors helping with the legislative aspects of contract work both for the benefit of the contractor and the company. In this article we hope to explain what umbrella companies are and what they do.
What are umbrella companies
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To put what umbrella companies do in simple terms: instead of an employer taking in contractors directly, they can go to an umbrella company and the contractors from this umbrella company can work as contractors for the employer while also still passing by as the full-time employees of the umbrella company. This arrangement makes it easier to navigate legislative stuff such as taxes.
Contractors in the case of umbrella companies don’t get paid directly by their employer.  Instead, they get paid by the umbrella company itself which gets paid by the employer. This prevents a lot of possible legal complications regarding contract workers due to the umbrella company being responsible for taking care of stuff such as taxes.
Disadvantages of Umbrella Companies
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There are some major advantages and disadvantages to umbrella companies. For starters when working with an umbrella company, you have less control over your pay as you will simply be an employee in the umbrella company. Furthermore, it isn’t tax efficient compared to setting up your own limited company. All the extra costs are also paid from the contractor’s paycheck.
The communication issues caused by the back and forth between the contractor, the employer and the umbrella company can also sometimes cause complications in matters such as taking a vacation and the employee benefits aren’t as good as the average employee.
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One thing to also keep in mind is that it is important to make sure that the umbrella company you are working with is a reliable one. There are umbrella companies which indulge in illegal practices such as tax avoidance schemes. Being affiliated with one of those could get the employee in trouble as well.
Advantages of Umbrella Companies
The most prominent advantage of an umbrella company has to be its simplicity where legislative manners are concerned. The umbrella company  takes care of the legislative side of contract work making it a much more simpler process for the contractor as well as making sure that contractors doesn’t accidentally make mistakes that could get them in legal trouble.
Furthermore, working with umbrella companies comes with employment benefits such as sick leave because you’re technically the employee of the umbrella company. However these benefits are still not as good as the employment benefits for a full-time employee. Umbrella companies also make it easier to find continuous employment.
Conclusion
To summarize, umbrella companies can turn the process of finding contract work to a simpler one by being an intermediary between contractor and employer. There are both advantages and disadvantages to this process and the contractor should weight the pros and cons well before deciding whether they’ll work with an umbrella company or choose another alternative. One should also be careful about the reliability of the umbrella company they choose if they decide to work with one.
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