As with any overseas operation, an international umbrella company presents both benefits and risks. In general, this type of entity provides payroll and accounting management for independent contractors working on short-term or fixed-term contracts in the United Kingdom.
In the UK, umbrella companies have faced scrutiny from Congress, which claims that contractors receive no financial advantages from umbrella companies and are forced to work through them to secure employment. The largest battle remains between Congress and FCSA, a trade association for these types of organizations.
FCSA claims that contractors choose to work with umbrella companies to receive full employment rights, like medical insurance, and all statutory benefits including holiday pay, maternity pay, sick pay, and pensions. Plus, according to the Association, an umbrella also provides employee support through HR services and record keeping, which helps contractors access this information quickly if needed for loan applications and other financial obligations.
Despite the battle between Congress and umbrella companies, many contractors choose to find new opportunities through these resources. As an international employer, you can work directly with an umbrella company to hire contractors for short-term projects and reduce some of your risks when it comes to working with temporary employees.
Structure of an International Umbrella Company
On a high level, an umbrella company is a middleman between the employer and the employee. Your business will work with an umbrella company to find a contractor for your project. Next steps include:,
- Assigning the project to the contractor.
- The contractor will perform the work and supply the invoice or timesheet to the umbrella company.
- The company will then invoice you for the work.
- Finally, you pay the umbrella company, and they pay the contractor.
The umbrella company manages benefits and withholding on behalf of the contractor, which takes these responsibilities out of your hands. As a result, the contractors pay a fee or have money withheld from their pay to receive these services. It’s a small price to pay for many contractors who would otherwise receive no benefits by working independently.
International Umbrella Company: Understand the Risks
Although there are many advantages associated with umbrella companies, including lower employment costs, compliance management, and skilled workforce availability, there are also risks.
Contractors working through umbrella companies are typically not tied down by any binding agreement. They are still freelance workers and could decide to quit the project at any moment. Also, your company's IP may not be protected. In overseas markets, IP protection is difficult. To prevent IP issues, work with contractors on projects that limit their interaction with your trade secrets or processes.
In addition, you will want to ensure that the umbrella company you work through is legitimate. Do your research and ask the following questions:
- Do they have agreements in place for their contractors?
- How do they manage fees for their contractors?
- Is your company charged a fee? If yes, what does that fee cover?
- Does the company manage compliance requirements including payroll taxes and withholdings?
- Can you interview and choose your contractors?
Before choosing an international umbrella company, give our team a call and discuss your options. We can help you determine if the company is legitimate and ensure that you’re asking the right questions. Our team has expertise in international hiring and payroll, and we’d love to help your business succeed overseas!
