Why Umbrella Companies Are a Win/Win/Win

200398499-001A payroll provider is an organization in the U.K. that partners with contract/temporary workers and end hirers or recruitment agencies, acting as the contract/temporary workers’ employer across the range of assignments they may work on, processing their pay, expenses and tax through the PAYE system.

While reasons for using an umbrella company vary, they create an almost unique win/win/win solution for all parties involved.

For the hirers. Many hirers that directly engage contract workers partner with umbrella companies, which act as the over-arching employer of the contract workforce. Working directly with the umbrella company (or having an influence over the umbrella companies used where agencies are supplying contract workers) provides an increasingly necessary level of protection to contingent workforce programs – in terms of reputational risk, HMRC compliance and client relationships – with no unnecessary press headlines! Also, by becoming more aware of and involved in the umbrella process, the hirer can ensure any contract workers engaged in this way have a complete understanding of the process and are being managed in the right way – with obvious attraction and retention benefits to the hirer.

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For the contract/ temporary worker. With the help of a payroll umbrella company, contract/temporary workers can maximize their income, save significant time in processing invoices, expenses, payments and HMRC reporting and ensure they are compliant with all relevant regulations and legislation. Umbrella companies will also offer additional employee/ contractor benefits – insurance cover, expert advice, retail discount programs. The best umbrella companies offer a ‘no worries/ no distractions’ pay model – leaving the contract/ temporary worker focused on fulfilling their current assignment, which improves performance. These benefits increase the worker’s morale and their loyalty to the recruitment agency or hirer, therefore improving retention levels and reducing training and induction costs.

For recruitment agencies. Partnering with an umbrella company is beneficial as the umbrella company legally acts as the contract workers’ employer. This mitigates certain risks for the agency and moves some financial responsibilities (such as Statutory payments) and processing costs to the umbrella company.. Furthermore, in certain circumstances, expenses can be paid tax free, which has the potential to reduce the overall cost of engagement of the contract worker and maximizes the agency’s margins.

Choose Carefully
When choosing an umbrella company, it’s important to remember that not all umbrella companies are as ethical as others. Recent press headlines underline this. The main differences lie in the extent to which some operators challenge the boundaries of the regulations and legislation. Whilst the choice of payroll umbrella companies seems vast, it’s important to remember that the transparency of who you chose as a supplier will trickle down to your contract workforce.

As such, it’s important to partner with a supplier that is honest, upfront and fair for all parties involved.

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Phil McDonald
Phil McDonald is the Managing Director of Umbrella Paraplus. He has more than 20 years of experience working at board level across the staffing and recruitment sector, having worked across a wide range of industry sectors and service offerings.

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