How umbrella companies work in 10 simple steps:
- The contractor finds an assignment with an agency or client, if direct
- You will sign an employment contract with the umbrella company
- The Client (who you will be on assignment with) signs the Agency timesheet, which will confirm to them the hours/days that you have worked
- You will send the signed time sheet to the Agency and also complete an identical online timesheet for the umbrella company along with any chargeable expense claims if applicable
- The Umbrella Company will raise an invoice to the Agency for the work you have done plus any expenses that the client has agreed to reimburse (ie chargeable expenses)
- The Agency invoices the Client for work completed plus any chargeable expenses
- The Client pays the Agency
- The Agency pays the Umbrella Company; the date will be determined by the Agency’s payment schedule
- The Umbrella Company processes the payment and any chargeable expenses and deducts the necessary tax and NI contributions. An Umbrella Company will make payment to you through PAYE (Pay As You Earn) and you should receive a payslip from them in the same way as you would in any other employment
- The umbrella company deducts employment costs and margin, and calculates the contractor’s taxable pay, taking into account any chargeable expenses
Below is a flow chart which explains the steps that take place between an Umbrella Company, Recruitment Agency and End Client in order for you to get paid each week or month. Please bear in mind that for you to receive a regular income from your Umbrella Company, the steps below will need to be completed according to the Agency’s timesheet and invoicing schedule:
